Rather than absolute advantage, comparative advantage is the driving force of specialization. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. Opportunity cost refers to what must be given up in order to obtain some item.
What is the basis of specialization?
Specialization is a method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency. This specialization is thus the basis of global trade, as few countries have enough production capacity to be completely self-sustaining.
How does specialization affect international trade?
The effects of specialization (and trade) include: Consumer benefits: Specialization means that the opportunity cost of production is lower, which means that globally more goods are produced and prices are lower. Consumers benefit from these lower prices and greater quantity of goods.
How does globalization affect demand for skilled labor?
A high volume of international trade reduces the demand for skilled labor. Increased mobility allows producers to move jobs to lower-cost labor markets. Globalization results in lower prices that give workers greater purchasing power.
Why does globalization lead to a reduction in wages in developed countries?
Why does globalization lead to a reduction in wages in developed countries? Labor unions have moved their operations to developing countries. A high volume of international trade reduces the demand for skilled labor. Increased mobility allows producers to move jobs to lower-cost labor markets.
Why does interdependence help to bring economic growth?
Why does interdependence bring economic growth? Interdependence creates greater protection for domestic producers, which enables them to raise prices. Interdependence strengthens governments allowing great tax revenues. Interdependence enables specialized production, which is more efficient.
