Please enable JavaScript.
Coggle requires JavaScript to display documents.
4.1.2 SPECIALISATION AND TRADE, ADVANTAGES AND DISADVANTAGES OF…
4.1.2 SPECIALISATION AND TRADE
Absolute advantage is when one country can produce a good more cheaply in absolute terms, than another country.
Comparative advantage is when a country can produce at a lower opportunity cost than another.
LIMITATIONS AND ASSUMPTIONS OF COMPARATIVE ADVANTAGE
-No transport costs
-No economies of scale and costs are constant
-Goods are homogenous
Factors of production are completely mobile
DIAGRAM.
TABLE
Example UK AND US
UK 100 cars and 200 vans
US 200 cars and 600 vans
ADVANTAGES AND DISADVANTAGES OF COMPARATIVE ADVANTAGE
-can lead to over dependence
-Can increase world output
-Can reduce production costs as countries can benefit from economies of scale.
-Can increase competiton as domestic firms must compete with outside competition.
-Can increase choice and thus consumer welfare
-Can lead to structural unemployment
-can lead to environmental issues
Can decrease sovereignty and loss of culture.
On axis with biggest difference that country has the competitive advantage in that good.
