International Trade and Specialization

What is the primary reason a country specializes in producing certain goods?

Because it has lower manufacturing costs than other countries

According to the theory of absolute advantages, what happens when a country has no cost advantage?

It cannot engage in international trade

What does the theory of relative advantages explain about international trade?

That countries will always gain from trade, regardless of their cost advantage

What is a result of specialization, according to the theory of absolute advantages?

Optimal production and increased welfare Signup and view all the answers

What is the main difference between the theory of absolute advantages and the theory of relative advantages?

The theory of absolute advantages focuses on cost differences, while the theory of relative advantages focuses on productivity differences Signup and view all the answers

What is a benefit of international trade, according to the theory of relative advantages?

Stimulated economic growth and employment Signup and view all the answers

What is the main difference between Smith's theory and Ricardo's theory?

Smith's theory assumes no exchange between countries. Signup and view all the answers

What is the opportunity cost of producing wine in Portugal?

Less units of cloth than England. Signup and view all the answers

What is the result of specialization in trade between England and Portugal?

Each country will specialize in the production of one good and trade. Signup and view all the answers

What is the concept that explains why Portugal specializes in wine production?

Comparative advantage Signup and view all the answers

What is the benefit of specialization in terms of production costs?

It reduces production costs. Signup and view all the answers

What is the result of trade between England and Portugal in terms of labor?

The work of 30 men has been freed. Signup and view all the answers

According to Adam Smith, what is the basis of his analysis on the benefits of international trade?

Absolute cost advantages that one country may have over another Signup and view all the answers

What is the concept that highlights the idea that countries can gain from trade by producing goods for which they have a lower opportunity cost?

Comparative advantage Signup and view all the answers

What is the concept that states that countries can gain from trade by producing goods for which they have a lower absolute cost?

Absolute advantage Signup and view all the answers

What is the term for the idea that countries can gain from trade by producing goods for which they are most productive?

Specialization Signup and view all the answers

What is the concept that states that trade can result in a positive sum game, where both countries can gain?

Liberal school Signup and view all the answers

What is the concept that states that trade is a zero-sum game, where one country's gain is another country's loss?

Mercantilist Signup and view all the answers