4.1.2

Specialisation & Trade

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Specialisation and Trade

Specialisation relies on trade because economies need to buy the things that they have not specialised in from other countries. Finland produces a lot of paper, but it may need to buy cars from a country like Germany that has specialised in car production.

Specialised economies need trade

Specialised economies need trade

  • Specialisation means countries often stop making products they need, to focus on producing the products they are better at.
  • As a result, trade must happen with other countries, and an efficient exchange system is needed.
  • Money is often used as this medium of exchange because everyone values money.

Comparative Advantage

Free trade can allow countries to specialise in the goods they are most efficient at producing. Trade means that they can buy some goods from other countries, rather than producing them themselves.

Opportunity cost of production

Opportunity cost of production

  • If a country produces sugar, it has an opportunity cost of production.
  • The labour and capital used to make sugar cannot be used to make wheat at the same time.
    • E.g. if Brazil can produce a lot of sugar cane per acre but not much wheat, and the US can produce a lot of wheat but not sugar cane, then the US has a lower opportunity cost of producing wheat than Brazil.
  • This can be shown using production possibility frontiers (PPFs).
Comparative advantage

Comparative advantage

  • The US has a comparative advantage in producing wheat.
  • Brazil has a comparative advantage in producing sugar cane.
  • If both countries could specialise in producing the goods they had a comparative advantage in, then:
    • The total world output of goods will rise.
    • Brazil and the US can trade wheat for sugar cane, and they both benefit.
  • Think of comparative advantage as what a country is least bad at - they all have to produce something!
Absolute advantage

Absolute advantage

  • A country has an absolute advantage in producing a good over another country if it uses fewer resources to produce that good.
    • E.g. if Saudi Arabia can produce corn and oil more efficiently than the US, but can only produce 100 barrels of oil or 25 bushels of corn, the opportunity cost for Saudi of producing one barrel of oil is the loss of 0.25 bushels of corn.
  • If the US lost a bushel of corn by producing one barrel of oil, then the US has a comparative, but not absolute advantage in corn.
Costs of international trade

Costs of international trade

  • Negative externalities such as pollution from freight.
  • Risk of structural/regional unemployment because employers relocate.
  • While international trade may benefit skilled workers, it can be bad for low-skilled workers.
  • Low-skilled workers in developed countries compete against extremely low wage workers worldwide, which is unsustainable.
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1

Exploring Business

1.1

Features of Business Organisations

1.1.1Sole Traders & Partnerships1.1.2Private & Public Limited Companies1.1.3Types of Liability & Not-For-Profits1.1.4Purposes of Businesses1.1.5Purposes of Businesses 21.1.6The Different Economic Sectors1.1.7Multinational Companies1.1.8Stakeholders1.1.9Influence of Stakeholders
1.2

Organisation of Businesses

1.2.1Organisational Structure1.2.2Types of Organisational Structures1.2.3Business Aims & Objectives1.2.4Business Aims1.2.5Business Objectives
1.3

Business Environment

1.3.1External Influences1.3.2Political & Legal Change1.3.3Economic Environment1.3.4Social & Technological Environment1.3.5Lifestyle & Technological Environment1.3.6Corporate Social Responsibility1.3.7The Competitive Environment1.3.8Innovation1.3.9Risk & Uncertainty1.3.10Porter's Five Forces1.3.11SWOT Analysis
2

Marketing Campaigns

2.1

Marketing

2.1.1Setting Marketing Objectives2.1.2Customer Needs2.1.3The Market2.1.4Competition & The Market2.1.5Consumer Behaviour2.1.6Market Research2.1.7Forms of Market Research2.1.8Market Segmentation2.1.9Cultural & Social Factors in Marketing2.1.10Promotional Decisions 32.1.11Pricing Strategies
2.2

Marketing Mix

2.2.1Marketing Mix2.2.2Product Life Cycle2.2.3Pricing Decisions & Price Skimming2.2.4Pricing Decisions & Price Penetration2.2.5Promotional Decisions2.2.6Promotional Decisions 22.2.7Promotional Decisions 32.2.8Market Mapping
3

Business Finance

3.1

Sources of Finance

3.1.1Internal Finance3.1.2External Finance3.1.3External Finance 23.1.4Sources of Business Finance
3.2

Financial Planning

3.2.1Revenue3.2.2Costs3.2.3Cash & Cash Flow3.2.4Cash & Cash Flow 23.2.5Break-Even Analysis3.2.6Profits
3.3

Financial Statements

3.3.1Balance Sheets3.3.2Income Statements3.3.3Liquidity
4

International Business

4.1

Globalisation

4.1.1Growing Economies4.1.2Specialisation & Trade
4.2

International Business

4.2.1Internationalisation4.2.2International Trade4.2.3MNCS4.2.4Conditions that Prompt Trade4.2.5Assessment of a Country
4.3

International Economic Environment

4.3.1Globalisation4.3.2Factors Contributing to Globalisation4.3.3Protectionism4.3.4The EU & the WTO4.3.5Trading Blocs
4.4

Factors Affecting International Business

4.4.1Global Competitiveness4.4.2Ethics of Global Business4.4.3Controlling MNCs4.4.4Cultural & Social Factors in Marketing
5

Principles of Management

5.1

Management & Leadership

5.1.1Managers5.1.2Management Theories5.1.3Managing Organisational Culture5.1.4Management Style
5.2

Theories of Motivation

5.2.1Motivating & Engaging Employees5.2.2Taylor's Theory5.2.3Mayo's Theory5.2.4Maslow's Theory5.2.5Herzberg's Theory
5.3

Managing Change

5.3.1Change5.3.2Key Factors in Change5.3.3Scenario Planning5.3.4Managing Change5.3.5Managing Strategic Implementation
6

Business Decision Making

6.1

Business Principles & Practices

6.1.1Influences in External Environments6.1.2Product Decisions6.1.3Competitive Environment6.1.4Corporate Strategy6.1.5Quantitative Sales Forecasting6.1.6Legislation
6.2

Quality Management

6.2.1Importance of Quality6.2.2Measuring Quality6.2.3Total Quality Management6.2.4Evaluating TQM
6.3

Human Resources

6.3.1Contracts6.3.2Recruitment6.3.3Training a Workforce
6.4

Documents & Business Decisions

6.4.1Sales Forecasts6.4.2Managing Strategic Implementation6.4.3Problems with Strategy

Practice questions on Specialisation & Trade

Can you answer these? Test yourself with free interactive practice on Seneca — used by over 10 million students.

  1. 1
    In 2018, which of these industries does the UK NOT specialise in?Multiple choice
  2. 2
    Which characteristic of money makes it most useful for trade?Multiple choice
  3. 3
    Which term refers to a country which produces a good using fewer resources compared to another country?Multiple choice
  4. 4
    Which of the following are costs of international trade?True / false
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Growing Economies

Internationalisation