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12 Cards in this Set
- Front
- Back
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Heckscher Ohlin theory |
A country will export goods that uses its abundant factors of production intensively and will import goods which would have used its scarce factors of production |
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Absolute advantage |
Where a country can produce more of a product than another country |
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Comparative advantage |
When a country can produce a product at a lower opportunity cost than another country, so it has a relative advantage in producing that product |
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Trading possibility curve |
Representation of all the combinations of two products that a country can consume if it engages in international trade- further out than PPF |
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5 evaluative assumptions of comparative advantage |
- transport costs are zero -factors of production can be easily switched from one product to another -there are constant returns to scale, no economies of scale -only two types of goods are made -goods made by different countries are identical |
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4 advantages of specialisation and trade |
-higher living standards (trading possibility curve), consume beyond PPF -higher economic growth, access to best components of production -economies of scale due to larger market -competition encourages efficiency and low prices |
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Three disadvantages of specialisation and trade |
-macroeconomic problems, structural unemployment due to inability to compete internationally, trade deficit -unbalanced development, only industries that have comparative advantage can develop -problems for developing countries , struggle to compete due to infant industries, reliance on agriculture |
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Patterns of trade |
Industries that countries spend on imports/ exports |
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4 factors influencing the pattern of trade |
-changes in comparative advantage, discovering resources or technological advancement -emerging economies eg China -trading blocs and agreements -changes in relative exchange rates |
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Terms of trade definition and formula |
-the average price of a country’s exports relative to the average price of a country’s imports (Index of average export prices/index of average import prices) x100 |
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4 impacts of an increase in a country’s terms of trade |
-increased living standards as can import more -improvement of balance of payments -demand pull inflation -resource curse/ Dutch disease, overproduction/reliance |
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4 possible causes of a change in a countries terms of trade |
-relative inflation rates -relative productivity rates -changes in exchange rates -tariffs |
