Cambridge IGCSE and O Level Economics

Chapter 36: International

specialisation
Suggested answers to individual and group activities
Group activities

Country Product
Brazil Coffee
Chile Copper
China Rare earths
Ivory Coast Cocoa
New Zealand Milk
Thailand Rubber
UK Formula 1 cars
Venezuela Oil

Individual activities
1 a 
Bangladesh appears to be specialising to a greater extent than Turkey. A higher proportion of
1
its exports are accounted for by textiles.
b Proportion of Bangladesh’s output and Turkey’s output, accounted for by textiles.
2 a 
Vietnam has the absolute advantage in producing both products, as it can produce more
clothing and catch more fish.
b Bangladesh has the comparative advantage in producing clothing. In Bangladesh, 1 clothing
unit = 4 fish, but in Vietnam, 1 clothing unit = 6 fish. So Bangladesh has a lower opportunity
cost in clothing than Vietnam. It can make half as many clothing units as Vietnam but only
catch a third as many fish.
c Vietnam will concentrate on its production of fish and export some to Bangladesh.
3 a 
Mongolia specialises in mining because its resources are suitable for the industry. It has
deposits of coal, copper, gold and other minerals (land) and, it can be assumed, workers
skilled in mining (labour) and the appropriate mining equipment (capital).
b The Mongolian economy would be very adversely affected by a recession in China. The
Chinese would buy and produce less and so would import less.

Suggested answers to multiple choice questions and

four-part question
Multiple choice questions
1 B
Differences in resources give rise to differences in efficiencies and opportunity cost ratios. A, C
and D would all tend to discourage international trade.

© Cambridge University Press 2018

Cambridge IGCSE and O Level Economics

2 C
Country Y has the absolute advantage in both products. It has the comparative advantage
in tractors. Its opportunity cost is 10 wheat, compared to an opportunity cost of 25 wheat in
country Z. Country Z has the comparative advantage in wheat. It has an opportunity cost of
1/25 tractor compared to Y’s 1/10.
3 D
Trade restrictions are a feature of international trade. A, B and C would all occur with internal
trade.
4 A
Copper and oil are primary products and financial services is a tertiary product.
From the information given, it is not possible to work out which country earns the maximum
export revenue.

Four-part question
a International trade is the exchange of goods and services across national boundaries.
b International trade may make it necessary for firms and households to exchange currencies. For
instance, an Indian firm buying French machine parts may have to sell Indian rupees to obtain
euros to buy the machine parts. Internal trade can be undertaken using the same currency.
Selling and buying products within a country will not encounter trade restrictions. It is, however,
possible that, for instance, tariffs or quotas may be imposed on imports and sometimes exports.
Such measures can make it more difficult to sell and buy products across national boundaries
than within a country.
c What determines what countries specialise in are the quantity and quality of its resources and
what is in global demand. A country, for instance, may specialise in banking if its banks are able 2
to take advantage of economies of scale, use advanced technology and are able to employ
skilled workers. Other factors that may encourage it to specialise in banking are the existence of
a range of other financial institutions and a reputation for sound banking practice. Having these
advantages should enable the country to sell high-quality banking services at a low price.
A country may have sufficient and good quality resources and may be the most innovative, but if
there is little or declining demand for the product, it is unlikely it would specialise in the product.
So the decision as to what to specialise in is determined by both supply and demand factors.
d If a country’s resources are best suited to tourism, it may gain a number of advantages from
specialising in tourism. If it has, for example, a warm climate, good beaches, good transport links
to other countries, good hotels and a good supply of labour. The country could attract a high
number of tourists from other countries. Incomes will be earned and the output of the tourism
industry will contribute to the country’s real GDP. Tourism is a labour-intensive industry. It can
create a relatively high number of jobs and so keep unemployment low. Earnings from tourism
appear in trade in services and so make a positive contribution to a country’s current account of
the balance of payments.
Demand for tourism has been increasing over time. As incomes rise, households usually spend
more on holidays. More households take holidays in other countries and spend more when there.
In a recession, however, households cut back on holidays, so earnings can fluctuate. Even during
times of rising incomes, one country’s earnings from tourism may be reduced by increased
competition from other countries. To benefit from specialisation in tourism, it is important that a
country maintains the quality and price competitiveness of its provision.
Demand for tourism in the country may fall as a result of a rise in the price of complements, most
noticeably the price of air and sea transport. A rise in the country’s exchange rate would make it
more expensive for foreigners to visit the country and so would also reduce demand.

© Cambridge University Press 2018

Cambridge IGCSE and O Level Economics

In addition, while tourism can create a relatively high number of jobs, some of these are not high-
quality jobs. A number of the jobs are low-skilled and low-paid. In some countries, tourism is
seasonal and so seasonal unemployment may occur.
There is also a risk that specialising in tourism may damage the environment and put too much
pressure on transport infrastructure and tourist attractions. For instance, hotels may be built
in areas of natural beauty and waste from these hotels, such as plastic water bottles, may go
to landfill sites. Roads around tourist attractions may become congested and a high volume of
visitors may cause damage to those attractions.

© Cambridge University Press 2018