Edexcel A Level Economics A:复习笔记4.1.2 Specialisation & Trade

• International trade decreases prices & increases the variety of goods/services available to a nation
  • This results in a higher standard of living
• Comparative advantage is the theory developed by David Ricardo in 1817 which states that a country should specialise in the goods/services that it can produce at the lowest opportunity cost
  • By specialising, the volume of production increases
  • Excess production can be exported
  • Goods/services which are not produced in the country can be imported
• Absolute advantage occurs when a country is able to produce a product using fewer factors of production than another country
  • A country may well have absolute advantage but still not have comparative advantage
    • It should produce goods/services in which it has comparative advantage

The Assumptions of Comparative Advantage

• As with any economic model, there are underlying assumptions to the theory of comparative advantage

1. Transport costs are zero: it does not account for moving the goods/services between countries. Depending on a nation's location this is more or less of a problem
2. There is perfect knowledge: each country knows what it has a comparative advantage in & also the comparative advantages of other countries
3. Factor substitution is easily achieved: economies can quickly adjust to changing global market conditions by switching from capital to labour - and vice versa
4. Constant costs of production: the theory does not take into account the economies of scale that can be achieved with an increase in output

Using Production Possibility Frontiers to Illustrate Comparative & Absolute Advantage

• Production possibility frontiers can be used to illustrate these concepts

The production possibility frontiers for 2 countries who both produce t-shirts & computer chips

Diagram Analysis

• Country A has an absolute advantage as it can produce more of both products
• Country A can produce either 200,000 t-shirts or 100,000 computer chips
  • To produce 100,000 computer chips, it gives up production of 200,000 t-shirts
  • The opportunity cost of producing 1 computer chip is 2 t-shirts
  • The opportunity cost of producing 1 t-shirt is 0.5 computer chip
• Country B can produce either 80,000 t-shirts or 80,000 computer chips
  • To produce 80,000 computer chips it gives up production of 80,000 t-shirts
  • The opportunity cost of producing 1 computer chip is1 t-shirts
  • The opportunity cost of producing 1 t-shirt is1 computer chip

• To produce 1 computer chip Country A gives up 2 t-shirts & Country B gives up 1 t-shirt
  • Country B has a comparative advantage in producing computer chips as it is giving up fewer t-shirts & so it should specialise in computer chip production
• To produce 1 t-shirt Country A gives up 0.5 computer chips & Country B gives up 1 computer chip
  • Country A has a comparative advantage in producing t-shirts as it is giving up fewer computer chips & so it should specialise in t-shirt production

Limitations to the Theory of Comparative Advantage

• Comparative advantage does tend to be one of the main factors that drives a nation's manufacturing in a global economy. However, there are limitations & drawbacks to the theory

The Limitations of Comparative Advantage

Advantages & Disadvantages of International Specialisation & Trade

• The advantages of international specialisation & trade are significant & are backed up by the large increase in the volume of global trade in the past fifty years

1. Lower prices
2. Greater variety of goods/services
3. More competition leads to better quality products
4. Economies of scale create efficiencies
5. Higher economic growth
6. Improved living standards

The Disadvantages of Specialisation & Trade