A2 OCR Economics F585 June 2016

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Figure 1.1 shows trade as a percentage of GDP for four selected economies. Explain two reasons why the trade-to-GDP ratio might vary so much between countries- trade to gdp is the sum of export and imports divided by the value of all GDP, comparative advantage for each economy is different where developing economies are reliant labour intensive production where as others have CA with capital intensive productions based on heckscher-ohlins theory they will do this as resources are abundant.

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developing economies like malawi and zambia are reliant on there natural resources the demand for which are inelastic (data from Tutor 2u can be added on) whereas developed economies like australia who have a higher level of economic complexity sell a wider range of goods and services where demand is far more elastic

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"Economic theory provides strong support for the process of globalisation in terms of the benefits of increased economic efficiency”- the process that have resulted in ever closer links between the world economies, increased competition due to reduction of trade barriers e.g tariffs, embargos etc, access to technology increasing quality and quantity increasing AS resukting in lower prices due to lower unit cost- monopolies lose power in markets for this reason (SNP competed away). consumer welfare maximized to due to wider choice of products leading to higher quality products lower prices, specialisation of mncs

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"One of the many factors promoting globalisation has been a reduction of trade barriers, including import tariffs.” With the aid of a diagram, analyse how a reduction in import tariffs might promote globalisation

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Describe what is meant by economic efficiency- whee allocation and productive efficiency is being achieved

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Distinguish between absolute and comparative advantage- absolute advantage- where one country produces more goods and services with the same amount of scare resources such that unit costs are lowered in theory for 2 countries 1 country will have abs adv in product and another country willl have a abs in another. comparative advantage where a country can produce goods and services at a lower opportunity cost than another.

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Distinguish between specialisation and the division of labour- specialization concentration of worker,workers,firms,region or whole economy on a narrow range of goods and services, div of labour- specialization of labour where the production process is broken down into separate tasks