Posted: March 13th, 2015

A. Define what is meant by absolute advantage. (2 Marks) B. Which country has absolute advantage in producing car? (2 Marks) C. What is the opportunity cost to make 1 car in the UK? (2 Marks) D. What is the opportunity cost to make 1 car in China? ( 2 Marks) E. Which country has comparative advantage in producing cars? (2 Marks

Question1:
1CAR                                              1 Keg of cheese
UK                                     15                                                                5
China                                  4                                                                2

A.    Define what is meant by absolute advantage. (2 Marks)
B.    Which country has absolute advantage in producing car? (2 Marks)
C.    What is the opportunity cost to make 1 car in the UK? (2 Marks)
D.    What is the opportunity cost to make 1 car in China? ( 2 Marks)
E.    Which country has comparative advantage in producing cars? (2 Marks)
F.    What is opportunity cost to make 1Keg of cheese in the UK?
G.    (g) What is the opportunity cost to make 1 keg of cheese in the China? (2 Marks)
H.    (h) Which country has the comparative advantage in producing 1 keg of cheese? (2 Marks)
I.    What is the relative productivity of China to the UK at producing cars? (2 Marks)
J.    (j) What is the relative productivity of China to the UK at producing a keg of cheese? (2 Marks)
K.    (k) Would it be worth specialising if it took 10 hours to make a car in the UK instead of 15? Explain your answer. (5Marks)

Question 2: Answer all parts of the question.
(a)    Define what is meant by globalisation ( 4 marks)
(b)    Identify three cost factors that are driving globalisation (3 marks)
(c)    Identify three of the ways in which government can drive globalisation (3 marks)
(d)    Explain briefly the infant industry argument for trade protectionism (5 marks)
(e)    Outline Krugman’s explanation of intra-industry trade (10 marks )

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