Please enable JavaScript.

Coggle requires JavaScript to display documents.

INTERNATIONAL TRADE (ASSUMPTIONS (1) Only two countries are involved in…

- - - - a) Occurs when expansion of industry drives up factor prices and less appropriate resources are available
    - - a) High transport cost between two countries may deter trade from occurring even with comparative advantage.
      - b) Transport costs may be so high such that it is cheaper to produce domestically despite the comparative advantage
    - - a) The Theory of Comparative Advantage assumes free trade without trade barriers.
    - - a) Factors of production may not be able to move freely between industries and thus hinders trade and the development of a comparative advantage
    - - a) In order to be independent and self reliant in times of crisis
  - - - a) Arises because of different levels of R&D in different countries.
    - - a) Refers to a changing pattern in comparative advantage through more R&D and training over time.
    - - a) Differences in factor endowments leads to differences in relative price factors, which affect relative prices of goods and services.
      - b) Factor endowment determines the productive potential of an economy at any given point of time.
      - c) However, factor endowment may change over time due to savings and education, which raise the capital and productivity of the labour force respectively.