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Economics IGCSEPDF 110
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● Over-dependence on a narrow range of goods or sectors.
● Vulnerability to external shocks (demand fall, commodity price drop).
● Structural unemployment if certain industries decline.
A country or firm will specialise when it can produce a good or service at lower
opportunity cost than others.
By specialising, output can increase, costs may fall, efficiency may rise and trade
becomes beneficial.
● Higher productivity, economies of scale, improved skills and use of technology.
● Increased variety of goods for consumers through trade.
● Gains from trade: countries can consume beyond their production possibility frontier
(PPF).
Trade allows countries to export what they specialise in and import what they do not
produce.
Terms of trade: ratio of export prices to import prices.
Trade enables consumption possibilities to expand compared to domestic production
alone.
Key terms
International trade
Benefits of specialisation
Risks/limitations of specialisation
Opportunity cost, comparative advantage, absolute advantage, terms of trade.