worldeconomic王韵涵.doc

Q1. Free Trade Free trade，it sometimes termed International Trade, had the intention goods and services could be exchanged freely between countries with no barriers to this exchange. Although many countries have eased restrictions on trade, completely free trade does not exist yet. For example from the German exports cars to the UK, Germany and the UK all belong to the EU because, so no barriers to trade and taxes, there is no quota restrictions, between Germany and Britains trade is very convenient, The transaction between them was no obstacle, Q2. Absolute and Comparative advantages The difference between comparative advantage and absolute advantage is the kind of production. The absolute advantage is used to refer to the capability of a country or firm to produce more of a good or service than its competitors, using the same amount of resources. An example of this type of advantage is, the US producing oil at a cheaper cost than Mexico because its takes about 10 labor hours to produce a barrel of oil in the US while in Mexico it takes 12 labor hours. comparative advantage is an economic theory about the potential gains from trade, nations that arise from differences in their factor endowments or technological progress. an nations has a comparative advantage over another in producing a particular good if he can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. The closely related law or principle of comparative advantage holds that under free trade, an nations will produce more of and consume less of a good for which he has a comparative advantage. If a country is relatively better at making wine than wool, it makes sense to put more resources into wine, and to export some of the wine to pay for imports of wool. This is even true if that country is the worlds best wool producer, since the country will have more of both wool and wine than it would have without trade. A c