<6.1 INTERNATIONAL SPECIALISATION>

LOWER PRICES: If countries specialise in what they are best at producing, they should be MORE PRODUCTIVE and hence total output should be higher. In addition, they will achieve ECONOMIES OF SCALE and may pass on the LOWER AVERAGE COSTS as LOWER PRICES for consumers. 

HIGHER QUALITY: Specialisation often results in REPETITION and the firms developing specific skills, techniques and tools related to the production of that specific good or service which RAISES THE QUALITY of the product. 

BETTER STANDARD OF LIVING: Before specialisation countries had to rely on themselves to produce all goods and services, however as they were unsuitable, the output (if any) was minimal, meaning choice and living standards were low, however as they can now specialise and trade their surplus, with countries who specialise in these other goods they can enjoy A GREATER VARIETY OF GOODS and hence have HIGHER LIVING STANDARDS.  

MONOPOLY POWER: One country or a small number of countries may gain control of most of the global market for a product and may USE ITS POWER TO RESTRICT SUPPLY and PUSH UP PRICE. For example, The Organisation of Petroleum Exporting Countries (OPEC), a group of the major oil producing countries, has pushed up the price of oil in the past.

LACK OF QUALITY CONTROL: If consumers are buying products from foreign specialists, those firms MAY NOT FOLLOW THE SAME HEALTH and SAFETY STANDARDS as in the home country as such the consumer may be at risk.

POTENTIAL SUPPLY SIDE SHOCKS: OVER-RELIANCE on a single supplier may mean that any problems that may occur in the countries that are producing the product, including natural disasters, or wars may mean that the products are unavailable, at least for some time. For example, the war in Ukraine has created shortages in the supply of grain. LINK

ECONOMIES OF SCALE / LOWER COSTS: If firms specialise, they can produce the product on a large scale, and this may enable them to take advantage of ECONOMIES OF SCALE, such as buying and technical economies, which lower their average cost and can raise profit levels.

CHEAPER RAW MATERIALS: Specialisation may LOWER the PRICE of a firm's RAW MATERIAL SUPPLIER, which will in turn allow them to increase their profit margin.

Specialisation means that countries have to trade. Engaging in international trade can help firms in the exchange of NEW management IDEAS, information about new products and NEW TECHNOLOGY.

RAISES ALLOCATIVE EFFICIENCY and raises REAL GDP: As it allows them to produce the good that their factors of production are best suited to eg. CHINA produces LABOUR-INTENSIVE MANUFACTURED PRODUCTS as it has an abundance of low-skilled labour.

CONSUME OUTSIDE ITS PPC: Once the country has established its specialisation it will produce a SURPLUS amount of that good which it can then TRADE in exchange FOR OTHER COUNTRY'S SURPLUS, meaning that it can enjoy the consumption of goods which it could never make (or only a small amount) meaning it can now CONSUME OUTSIDE ITS PPC, which RAISES CONSUMPTION LEVELS and subsequently LIVING STANDARDS.

OVER-RELIANCE on just a few products is RISKY, as if demand was to fall then not only would GDP fall, but also there would be a large amount of STRUCTURAL UNEMPLOYMENT only trained in a limited number of job fields.

OVER RELIANCE on imports of vital necessities and raw materials such as water and gas leave the economy vulnerable to shortages for example Singapore relies heavily on Malaysia for its water.