Downsides of Specialisation and Trade Y13 Economics – last part of Specialisation notes relating to Comparative Advantage

Advantages of specialisation and trade The advantages of specialisation and trade include: • lower prices and more choice for consumers • larger markets and economies of scale for firms • higher economic growth and living standards (based on the law of comparative advantage).

Disadvantages of Specialisation and Trade Deficit on current account if a country’s goods and services are uncompetitive OR fall in global demand for product =↑ unemployment And if currency weakened, =↑ domestic inflation for imported goods

Disadvantages of Specialisation and Trade Dumping by foreign firms, i.e. selling at below average cost = ↑ unemployment

Disadvantages of Specialisation and Trade Sensitivity to tariffs, quotas or other forms of protection

Disadvantages of Specialisation and Trade ↑ economic integration = Unbalanced development of CA industries =↑ exposure to external shocks

Disadvantages of Specialisation and Trade Global monopolies as global (transnational) companies become larger

Disadvantages of Specialisation and Trade Monopsony power of MNCs in LDCs = ↓ prices for raw materials

Disadvantages of Specialisation and Trade Low levels of start-up in LDCs (EoS of existing firms)

Disadvantages of Specialisation and Trade Wars and natural disasters may have a catastrophic effect on world trade. Hence countries often make a strategic choice about essential goods and services