Questions - 12
     
     
         1.    Why do countries specialise in production? (Answer) (i) countries are not naturally suited to produce some products e.g. Ireland cannot grow lemons (ii)if countries tried to produce everything they would not achieve economies of scale.
         2.     Give some examples of where Ireland specialises? (Answer) Ireland specialises in agricultural production especially beef and dairy products.
    In the past tourism was a great speciality though we now suffer greater competition in this
    regard.
         3.     What is meant by the law of absolute advantage. Distinguish it clearly from the law of comparative advantage.
       (Answer) We can illustrate best with two countries and two products. If one country (A) is more efficient in terms of one product like cars the other (B) better in terms of producing say - food, then A has an absolute advantage in cars and B in food. Thus A should specialise in   producing cars and B  food. With comparative advantage one country could be more efficient at producing both products. However specialisation should still take place on the lines of relative efficiency. So if A can produce 3 times as many cars as B and 2 times as much food, then A has a relative advantage in cars and B a relative advantage in food. Thus A should specialise in cars and B in food.
           4.      What are the main limits on specialisation?
      (Answer) with to much specialisation resources like labour could become scarce. Thus devoting people with no natural skills in the area to production could lead to inefficiency.
    Also in too much specialisation could leave a country vulnerable at times of political crisis

    5.    Explain what is meant by the terms of trade?

    (Answer) the relationship of the price of a countries exports to that of imports. Thus when export rise faster than import prices, the terms of trade improve.
     

    6.     Outline some additional reasons (other than absolute and comparative advantage) for trade.

    (Answer) Economies of scale could arise through increased production. Also trade enhances consumer choice. It also encourages competition and can – as in Ireland – facilitate faster economic growth. Also non-economic reasons for trade – social, cultural and political are important.
     

    7.     Why do countries try to limit trade?

    Answer. The main reason is to protect jobs in industries that are vulnerable. Political factors (as with former South Africa) can be important.
     

    8.     Outline some of the major ways of restricting trade.

    Answer. Tariffs, quotas administrative barriers, subsidies grants etc.
     

    9.     Is Ireland free to restrict trade?

    Answer. Not really. We are members of the EU and bound by their rules. Also we are bound by international trading agreements.
     

    10.     Distinguish a tariff from a quota.

    Answer. A tariff is a tax or levy on a product. A quota is a quantitative limitation.