International economics

Table of Contents

1. Topic pack - International economics - introduction
2. Section 3.1 International trade (notes)
   1. Reasons for trade - introduction
   2. Benefits of trade
   3. Absolute advantage
   4. Comparative advantage
   5. Absolute and comparative advantage (video)
   6. World Trade Organisation (WTO)
   7. The role of the WTO
   8. WTO background information
   9. Trade protection - introduction
   10. Introduction to trade policies (video)
   11. Types of protectionism
   12. Tariffs - case study
   13. Imposing a tariff - calculation
   14. Setting a quota - calculation
   15. Giving a subsidy - calculation
   16. Arguments for protectionism
   17. Arguments against protectionism
3. Section 3.1 International trade (questions)
4. Section 3.1 International trade - simulations and activities
5. Section 3.2 Exchange rates (notes)
6. Section 3.2 Exchange rates - questions
7. Section 3.2 Exchange rates - simulations and activities
8. Section 3.3 Balance of payments - notes
9. Section 3.3 Balance of payments - questions
10. Section 3.4 Economic integration - notes
11. Section 3.4 Economic integration - questions
12. Section 3.5 Terms of trade - notes
13. Section 3.5 Terms of trade - questions
14. Print View

Absolute advantage

Did you know?

• Trade allows a country to specialise in the production of those products that it can produce most efficiently. A country will benefit from international trade as long as it exports goods for which it forgoes less other goods than other countries, and imports goods in which it has a higher opportunity cost of production than other countries.

In this section we look at how the theories of absolute and comparative advantage help explain the benefits of trade to a country, and to the World.

International trade is based on specialisation at a national level.

According to economic theory a country could benefit from trade if it specialises in the production of goods in which it has an absolute or comparative advantage (see below).

Theory of Absolute advantage

According to Adam Smith (1723-1790), each country should concentrate on producing those goods in which it has an absolute advantage.

Benefits of specialisation and trade:

• Consumers in each country can buy a wider range of goods at lower prices leading to a better standard of living
• There is a more efficient allocation of resources. i.e. better use of scarce resources
• More goods are produced in the World and more goods are available for consumption.