2- Evolution Of IB

Question 1

Benefits of International Trade

Answer 1

A greater amount of choice in g+s

Competition results in lower prices

Increase quality of life

Higher living standards

Question 2

Mercantilism

Answer 2

Nation could only gain from external trading if it had a trade surplus

Question 3

Specialisation

Answer 3

Free trade encourages countries to specialise in the production of g+s that they most efficiently produce.

Question 4

Factor endowments

Answer 4

Nations primarily export g+s that intensely use their abundant factors of production

H-O theory- attributes CA of a nation to its factor endowments. Assumes: perfect competition of market place, perfect immobility of factors of production among countries

Question 5

Factor price equalisation

Answer 5

When factors are allowed to move freely among trading nations efficiency increases, leading to superior allocation of production of g+s among countries.

Free mobility will lead to efficient reallocation of resources(production factors) until price equilibrium reached.

Question 6

Trade Policies

Answer 6

All government actions that seek to alter size of merchandise and/or service flows to and from a country.

Instruments: tariffs, preferential duties, MFN status, non tariff barriers (import quotas, VER, domestic content provisions)

Question 7

Current practice of managed trade

Answer 7

Socioeconomic rationale: counter trade, export cartels, protection of infant industries, questionable labour practices, environment considerations, health and safety.

Geopolitical rationale: national security, protection of critical industries, embargoes.