assumptions/limitations relating to comparative advantage

• Why is the assumption of zero transport costs significant in the theory of comparative advantage?

  It simplifies the model by not accounting for the costs of moving goods/services between countries.
• What are the underlying assumptions of the theory of comparative advantage?

  There are several assumptions including zero transport costs, perfect knowledge, easy factor substitution, and constant costs of production.
• How does a nation's location affect the assumption of zero transport costs in comparative advantage?

  A nation's location can make transport costs more or less of a problem depending on its geographical position.
• What does the assumption of perfect knowledge imply in the context of comparative advantage?

  It implies that each country is aware of its own comparative advantages and those of other countries.
• How does the assumption of easy factor substitution benefit economies in a global market?

  It allows economies to quickly adjust by switching between capital and labor in response to changing market conditions.
• What does the assumption of constant costs of production overlook in the theory of comparative advantage?

  It overlooks the economies of scale that can be achieved with an increase in output.
• How does the theory of comparative advantage relate to economies of scale?

  The theory does not account for the benefits that can arise from increasing output, which can lead to lower average costs.
• What is a consequence of over-dependence on specialization in international trade?

  It creates a dependence on other countries, generating vulnerability.
• How does receiving gas supplies from Russia illustrate the risks of over-dependence?

  It works well when relations are good but can become problematic during conflicts.
• What has been identified as an over-dependence in energy supplies?

  Over-dependence on Russian gas.
• What aspect of production does the theory fail to consider that leads to environmental damage?

  The negative externalities of production.
• How can negative externalities of production affect quality of life?

  They can significantly worsen the quality of life in towns, cities, and countries.
• What is the likely effect of increased GDP per capita on income distribution?

  The distribution of the extra income is likely to be uneven.
• Who is expected to gain more from the increase in GDP per capita?

  The wealthier sections of the population.
• What is a potential consequence of specialization on employment levels?

  It may lead to structural unemployment as certain industries shut down.
• Why might some workers face long-term unemployment due to specialization?

  They may not be able to move into other occupations.
• What is the expected net effect on employment as countries specialize?

  There should be a net increase in employment.
• What happens to the number of long-term unemployed if workers cannot transition to new occupations?

  The number of long-term unemployed will rise.