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- Explain that gains from trade include lower prices for consumers, greater choice for consumers, the ability of producers to benefit from economies of scale, the ability to acquire needed resources, a more efficient allocation of resources, increased competition, and a source of foreign exchange.
- Explain the theory of absolute advantage.
- Explain, using a diagram, the gains from trade arising from a country’s absolute advantage in the production of a good.
- Explain the theory of comparative advantage.
- Describe the sources of comparative advantage, including the differences between countries in factor endowments and the levels of technology.
- Draw a diagram to show comparative advantage.
- Calculate opportunity costs from a set of data in order to identify comparative advantage.
- Draw a diagram to illustrate comparative advantage from a set of data.
- Discuss the real-world relevance and limitations of the theory of comparative advantage, considering factors including the assumptions on which it rests, and the costs and benefits of specialization (a full discussion must take into account arguments in favour and against free trade and protection).
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