Specialisation and Trade

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6 flashcards · Economics · by Addaneye

1. Assumptions of comparative advantage theory

   Average cost of production No trade barriers No transport costs

2. Limitations of comparative advantage theory

   Specialisation leads to diseconomies of scale Trade barriers might distort comparative advantage Transport costs might distort comparative advantage

3. Three areas to consider when adv & disadv of specialisation and trade

   world output international markets price level

4. Advantages of specialisation and trade

   Leads to an increase in world output which will increase living standards Creates larger markets for firms allowing them to benefit from economies of scale Can lead to lower prices and more choice

5. Disadvantages of specialisation and trade

   Based on unrealistic assumption May lead to overdependence on imports and exports Can lead to demotivation and a fall in productivity

6. What is the theory of comparative advantage?

   If countries specialise in the goods they have a comparative advantage in, global output will increase