b) Advantages and disadvantages of specialisation and trade

• What does comparative advantage illustrate about world output?

  It shows that world output can increase if countries specialize in what they produce best.
• How does trading and specializing benefit countries economically?

  It allows countries to benefit from economies of scale, reducing costs and prices globally.
• What are economies of scale?

  Economies of scale refer to the cost advantages that enterprises obtain due to their scale of operation.
• Why do different countries trade based on their factors of production?

  Trade allows countries to utilize factors of production they may not have been able to otherwise.
• How does trade affect consumer choice?

  Trade enables consumers to have greater choice about the types of goods they buy.
• What is one benefit of increased competition due to trade?

  It provides an incentive to innovate, creating new goods and services.
• How does innovation from competition affect consumer welfare?

  It increases consumer welfare by providing new goods and services.
• What is the impact of trade on production methods?

  Trade leads to new production methods, which lower costs.
• What can transnational firms do as they grow in size and market power?

  They can dictate prices and output in many regions.
• How do transnational firms influence governments?

  They can use bribery and corruption to gain access to raw materials.
• What company admitted to multiple allegations of bribery to secure mineral rights deals?

  Glencore
• What is the effect of external shocks on economies due to trade interdependence?

  Shocks to other economies have a knock-on effect.
• What recent event created global shockwaves in the energy and grain markets?

  The Russian war on Ukraine
• What happens when a country imports more than it exports?

  It results in a deficit on the current account.
• Why do developed countries often have a current account deficit?

  Because citizens have high income and import to improve their standard of living.
• What typically causes a current account deficit in developing countries?

  A lack of global competitiveness and the need to import necessity products.
• What happens to employment in successful industries in a global market?

  Employment in successful industries will increase.
• What is a concern related to unemployment in the context of global markets?

  Structural unemployment is a particular concern.
• How do government supply-side policies affect structural unemployment?

  They make a significant difference to the length and severity of structural unemployment.
• What is one way governments support key industries?

  Through subsidies
• How do subsidies affect production in key industries?

  They encourage excess production
• What happens to excess production from subsidized industries?

  It is dumped on world markets at low prices
• How has the USA's subsidy of cotton farmers affected competitors?

  It has put competitors out of business
• What issue do developing countries face regarding their product base?

  They often lack the finance to develop a diversified product base
• What is the consequence of over-specialization in commodity products for developing economies?

  It makes the country's GDP very dependent on commodity prices
• What are the implications of government subsidies on global markets?

  • Encourages excess production
  • Leads to dumping of products at low prices
  • Can harm competition and drive out businesses
• What are the risks associated with over-specialization in developing economies?

  • High dependency on commodity prices
  • Vulnerability to market fluctuations
  • Limited economic diversification