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Economic Principles of Specialization and Trade

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Economic Principles of Specialization and Trade

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Questions and Answers

Which country should specialize in the production of cocoa based on the concept of absolute advantage?

Neither country

Ghana (correct)

South Korea

Both South Korea and Ghana

What is the primary argument made by Smith regarding production and trade between countries?

Countries should produce everything they need domestically.

Countries should specialize in goods they can produce at a lower cost and trade. (correct)

Countries should focus on avoiding trade with others.

Countries should produce goods at home that they can make for a higher cost.

If Ghana chooses to specialize in cocoa production, what could be the maximum amount of cocoa it can produce with its resources?

20 units

10 tons

5 tons

20 tons (correct)

Which factor gives South Korea an absolute advantage in the production of rice?

Lower resource input requirement for rice Signup and view all the answers

In trading goods, what benefit does England receive by specializing in textiles?

Access to cheaper wine from France Signup and view all the answers

What does the production possibility frontier (PPF) represent for a country?

All possible combinations of goods a country can produce Signup and view all the answers

How many tons of rice can South Korea produce if it specializes in rice production?

20 tons Signup and view all the answers

What is the implication of countries producing goods at home that they can buy for a lower cost from others?

It creates an economic disadvantage. Signup and view all the answers

Study Notes

Specialization and Trade

Countries should focus on producing goods they're best at (absolute advantage) and trade for others.
- Example: England specializes in textiles, France in wine.
Smith's argument: Don't produce goods at home if they can be bought cheaper from other countries.
Specialization benefits all involved countries through trade.

Production Possibility Frontier (PPF)

PPF represents all possible combinations of goods a country can produce with its resources.
Ghana's PPF (GG') shows it can produce 20 tons of cocoa or 10 tons of rice, or a combination.
South Korea's PPF (KK') shows it can produce 5 tons of cocoa or 20 tons of rice, or a combination.
Ghana has an absolute advantage in cocoa production (uses fewer resources).
South Korea has an absolute advantage in rice production (uses fewer resources).

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Description

Explore the key concepts of absolute advantage and specialization in trade through real-world examples like England and France. Learn how the Production Possibility Frontier (PPF) illustrates resource allocation in countries like Ghana and South Korea, highlighting their unique advantages in cocoa and rice production.