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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