QUESTION 5 (20 MARKS)

1. Comparative advantage enables specialization and trade and this can be one of the key factors that helps a country to grow and develop. China's emergence as an economic power is due to many things, but its ability to exploit its comparative advantage is certainly one such factor. Analyse anyTWO (2)reasons why certain countries are likely to see their comparative advantage change as they develop?
2. The world economy has formed into a series of trade blocs, based upon regional groupings of countries. Such trade blocs are examples of preferential trading arrangements. These arrangements involve low or zero restrictions between the members, thus encouraging trade between them. Trade restrictions remain, however, with the rest of the world. This causes complaints that members gain at the expense of the rest of the world. Analyze anyTWO (2)factors which will determine whether a country's joining a customs union will lead to trade creation or trade diversion?