8.0 INTERNATIONAL ASPECTS
GLOBALISATION OVERVIEW
INTERNATIONAL SPECIALISATION
INTRODUCTION: Why do countries trade and what are the benefits that can be derived from trade? Trade between individuals, within nations and across international borders brings many benefits and perhaps the greatest benefit of all is derived from specialization. When countries specialize it means that they produce only those things that they have a low opportunity cost in compared to other goods they could produce. Assuming that all countries do not have identical opportunity costs in the production of the goods they make then there will be benefits from trade because of specialization. Watch the video below and take notes as you watch to explain the international trade benefits that are achieved through specialization.
the theorys of ABSOLUTE and comparative advantage
An example is given of trade between Ethiopia and China in Barley and Coffee:
1. If neither country traded, in other words they were self-sufficient, what could each country produce if they split their resources 50-50?
2. What would be the opportunity cost for China of producing 20 Barley?
3. So what would be the opportunity cost of producing 1 Barley?
4. What is the opportunity cost for Ethiopia of producing 20 Coffee?
5. What is the opportunity cost to Ethiopia of producing 4 Barley?
6. Which country has the absolute advantage in the production of Barley and why in the production of coffee, explain why.
7. Draw the absolute advantage diagram, notice that each country has an absolute advantage in the production of one good, this can be shown in the diagram with the country with the absolute advantage having a greater quantity of production of the good on the y or x axis
Thinking point: If a country had an absolute advantage in both goods would it still make sense for the two countries to trade with each other?
1. If neither country traded, in other words they were self-sufficient, what could each country produce if they split their resources 50-50?
2. What would be the opportunity cost for China of producing 20 Barley?
3. So what would be the opportunity cost of producing 1 Barley?
4. What is the opportunity cost for Ethiopia of producing 20 Coffee?
5. What is the opportunity cost to Ethiopia of producing 4 Barley?
6. Which country has the absolute advantage in the production of Barley and why in the production of coffee, explain why.
7. Draw the absolute advantage diagram, notice that each country has an absolute advantage in the production of one good, this can be shown in the diagram with the country with the absolute advantage having a greater quantity of production of the good on the y or x axis
Thinking point: If a country had an absolute advantage in both goods would it still make sense for the two countries to trade with each other?
In the second scenario Brazil and India are producers of Corn and Wheat:
1. Which country has an absolute advantage in both Corn and Wheat?
2. What is the opportunity cost to Brazil of only producing Corn?
3. What is the opportunity cost India of producing only Corn?
4. Which country has the lowest opportunity cost in the production of corn and which in wheat?
5. If they only produce the goods that they have the lowest opportunity cost in what will be global output?
6. Is this better in terms of global output than if they chose not to specialize and trade?
7. Draw the diagram to show this.
1. Which country has an absolute advantage in both Corn and Wheat?
2. What is the opportunity cost to Brazil of only producing Corn?
3. What is the opportunity cost India of producing only Corn?
4. Which country has the lowest opportunity cost in the production of corn and which in wheat?
5. If they only produce the goods that they have the lowest opportunity cost in what will be global output?
6. Is this better in terms of global output than if they chose not to specialize and trade?
7. Draw the diagram to show this.
ACTIVITY 2: What are the advantages and disadvantages of International specialization? Draw a mind map to illustrate this idea. You can use your Canva accounts to create this.