Absolute and Comparative advantage

  • Created by: meloakes
  • Created on: 31-03-15 15:23
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  • Absolute and Comparative Advantage
    • Absolute advantage: where one country is able to produce more of a good/service with the same amount of resources. unit cost is lower
    • Recipricol advantage: where (two countries, two products), each country has an absolute advantage
    • Comparative advantage: where one country produces a good or service at a lower relative opportunity cost than others
      • Factor endowments:the mis of factors of production.
      • Labour intensive production & Capital intensive production
      • Heckscher-Ohlen model: one country will export products that it has an abundant factor of production and import those that are scarce.
    • Terms of trade: the price of one country exports, relative to the price of imports
    • Leads to transfer of knowledge and technology
    • Leads to an overall global increase in GDP
    • leads to more competition


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