Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

IB Economics HL > 3.1 International trade > Flashcards

3.1 International trade Flashcards

1
Q

What is international trade?

A

The buying and selling (or exhange) or goods and services across international boundaries.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How does trade benefit a country (specialisation: production and consumption)?

A

Sepcialisation increases in domestic production and consumption

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is specialisation?

A

When an individual, firm or country concentrates production on one or a few good and services (e.g. Japan is a big producer of cars and technology and less of natural resources such as wood)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What usually happens to productive efficiency when specialising?

A

Productive efficiency increases as the domestic workforce and infrastructure are more focused on a certain type of production, thus becoming efficient.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How does specialisation with trade benefit a country?

A

They can consume past the PPF, something they would not be able to do if they didn’t trade.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is normally linked to specialisation?

A

Trade is important when specialised as the domestic country is not able to produce other needed goods, or can but are very inefficient.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a good way to decide what to specialise in?

A

Factor endowments and what is ‘Higher’ on a PPF.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are factor endowments?

A

the amount of land, labour, capital, and entrepreneurship that a country possesses and can exploit for manufacturing.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How does trade benefit a country (economies of scale: production)?

A

Firms are able to decrease the average cost of production (cost per unit of output). By specialising and becoming bigger, they will become more efficient.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Why does trade allow firms to get bigger?

A

Without trade: limited by domestic market size and demand.

With trade: not as limited, arguably ‘unlimited’ at current levels.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How does trade benefit a country (competition and choice: consumption)?

A

By importing a variety of goods and services from different countries, there is a wider variety of choice which increases consumer purchasing power. These goods compete with one another more than they would in domestic markets, thus are forced to be more efficient and provide lower prices and better goods.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How does more competition benefit firms?

A

Increased competition incentivises firms to become more efficient and minimise their costs. Lower costs also mean that more consumers are able to buy, increasing quantity demanded. Therefore increases consumption at greater efficiencies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How does trade benefit a country (resources: production and consumption)?

A

Producers may be limited by the amount and variety of resources (capital, labour and land), trade allows producers to acquire resources beyond domestic boundaries. Consumers can also benefit from goods and services which otherwise would not be available to them.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How does trade benefit a country (allocative efficiency: production and consumption)?

A

Free trade: free from Government intervention, could lead to better allocative efficiency as there isn’t distortion and government failure.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How does trade benefit a country (foreign exchange: production and consumption)?

A

Trading allows countries to acquire foreign exchange (foriegn currencies) to make payments for imports and for payments abroad.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How does trade benefit a country (innovation: production and consumption)?

A

Globalisation allows firms to get inspiration from foreign production systems and technologies, benefiting consumers from innovating products.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How does trade benefit a country (interdependence: society)?

A

Interdependance creates strong links and foreign relations which reduce the possibility for war and hostility.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How does trade benefit a country (growth: production and society)?

A
  • Trade as an ‘engine for growth’
  • increased specialisation, economies of scale, greater efficiency, access to resources
  • increased competition technological advances and expanding markets
  • increase domestic output and therefore increase economic growth.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is absolute advantage?

A

the ability of one country to produce a good using fewer resources than another country.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is comparative advantage?

A

a situation where one country has a lower opportunity cost in the production of a good than another country.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How do you calculate the opportunity cost of one good over the other?

A

Max produced units of the other good / max produced units of the measured good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the assumptions of comparative advantage?

A
  • FoPs are immobile and fixed
  • Technology is fixed
  • There is perfect competition
  • There is full employment of all resources
  • Imports and exports balance each other
  • There is free trade
  • Ignores transportation costs
  • Major structural changes to specialise
  • May lead to excessive specialisation and diminishing returns
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Who is the WTO?

A

World Trade Organisation: the organisation for liberalising trade. It provides the rule book and standards for international trade.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is trade protection?

A

government intervention in international trade by imposing barriers to prevent free entry of imports - to protect the domestic market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Export diagram (free trade)

A

world supply curve (world price) above that of domestic market equilibrium.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Import diagram (free trade)

A

world supply curve (world price) below that of domestic market equilibrium.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is a tariff on free trade?

A

a tax on imported goods.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

How would you diagrammatically show a tariff?

A

elastic world supply is shifted upwards (world price increases) - most likely still below equilibrium.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Consumer surplus before tariff

A

sections a + b + c + d + e + f

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Consumer surplus after tariff

A

sections a + b (decreased)

31
Q

Domestic producer surplus before tariff

A

section g

32
Q

Domestic producer surplus after tariff

A

sections c + g

33
Q

Government tariff revenue before tariff

A

zero

34
Q

Government tariff revenue after tariff

A

section e

35
Q

Welfare loss before tariff

A

zero

36
Q

Welfare loss after tariff

A

sections d + f

37
Q

What happens to quantity supplied by domestic producers after a tariff?

A

Increases from Q1 to Q2

38
Q

What happens to quantity supplied by foreign producers (quantity of imports) after a tariff?

A

Decreases from Q4-Q1 to Q3-Q2

39
Q

What happens to overall quantity demand after a tariff?

A

Decreases from Q4 to Q3

40
Q

Advantages of a tariff

A
  • Increased domestic producer surplus
  • Increased government revenue
  • Increased domestic employment (producing more)
41
Q

Disadvantages of a tariff

A
  • Decreased consumer surplus (if costs are passed down)
  • Worsened income distribution (a regressive tax)
  • Decreased productive efficiency (as world price is lower than domestic, foreigners have comparitive advantage, domestics do not).
  • Foreign producers are worse off- Global misallocation of resources
42
Q

What is an import quota?

A

a legal limit on the quantity of a good that can be imported over a time period.

43
Q

How would you show an import quota on a diagram?

A

For domestic supply above world price, it shifts right by the amount of the quota

44
Q

Consumer surplus before quota

A

sections a + b + c + d + e + f

45
Q

Consumer surplus after quota

A

sections a + b (decrease)

46
Q

Domestic producer surplus before quota

A

section g

47
Q

Domestic producer surplus before quota

A

sections c + g (increase)

48
Q

Government quota revenue surplus before quota

A

zero

49
Q

Government quota revenue surplus after quota

A

zero (no change) however, foreign governments can gain section e as they can sell permits for exports as a result of quota

50
Q

Welfare loss before quota

A

zero

51
Q

Welfare loss after quota

A

sections d + e + f (created)

52
Q

What happens to quantity supplied by domestic producers after a quota?

A

Increases from Q1 to Q2

53
Q

What happens to quantity supplied by foreign producers (imports) after a quota?

A

Decreases from Q4-Q1 to Q3-Q2

54
Q

What happens to the overall quantity demanded after a quota?

A

Decreases from Q4 to Q3

55
Q

Advantages of a quota

A
  • Increased producer surplus (domestic)
  • Increased domestic employment (increased supply)
56
Q

Disadvantages of a quota

A
  • Decreased consumer surplus
  • No gain in government revenue (costs of monitoring and enforcement)
  • ‘Free gift’ to foreign governments
  • Income inequality increases (same effect on a tariff, i.e. increased price)
  • Decreased productive efficiency (inefficient domestic firms - lack dynamic efficiency)
  • Exports may be worse off or better off (less revenue, but also have quota licences)
  • Global misallocation of resources.
57
Q

What is a subsidy in trade?

A

government providing money and/or tax breaks to domestic firms to allow them to better compete with imported goods and services.

58
Q

How would you show a subsidy on a diagram?

A

the domestic supply curve shifts right by the amount of the subsidy

59
Q

What happens if the subsidy shifts past world supply?

A

there are zero imports and the additional supply can become exports

60
Q

What happens to price (consumer surplus) after a subsidy if the country is still importing?

A

no change, stays at the world price

61
Q

What happens to price (consumer surplus) after a subsidy if the country is now exporting?

A

price decreases to domestic equilibrium (consumer surplus increases)

62
Q

What happens to quantity importing after a subsidy if the country is still importing?

A

decreases from Q2-Q1 to Q2-Q3

63
Q

What happens to quantity importing after a subsidy if the country is now exporting?

A

no imports, exports are of quantity where world supply intersects domestic supply - where world supply intersects domestic demand (i.e. the surplus)

64
Q

What area shows the cost of a subsidy?

A

area of (price at domestic equilibrium - world price) x (quantity at domestic equillibrium)

65
Q

What happens to domestic production after a subsidy?

A

Increases from Q1 to Q3

66
Q

How is consumption affected by a subsidy if a country is still importing?

A

no change

67
Q

How is consumption affected by a subsidy if a country is now exporting?

A

increased to new domestic equilibrium.

68
Q

Advantages of a subsidy

A
  • Not as harmful as tariffs or quotas
  • Domestic producers are better off
  • Domestic employment increases
69
Q

Disadvantages of a subsidy

A
  • Taxpayers must pay more (for the subsidy)
  • Strain on the government budget (opportunity cost)
  • Increased inefficiency of domestic production
  • Foreign exporters are worse off
  • Global misallocation of resources
70
Q

Arguments AGAINST trade protection (i.e. FOR free trade)

A
  • Producers and their employees are the only groups that benefit
  • Higher costs of production = inefficient domestic firms
  • Consumers lose in most cases
  • Income distribution worsens (except subsidy and admin barriers)
  • Foreign producers are worse off in all cases
  • Society as a whole loses out (misallocation of resources)
  • May damage export competitiveness (domestic firms are less dynamically efficient)
  • Trade wars
  • Potential for corruption
71
Q

Arguments FOR trade protection (i.e. AGAINST free trade)

A
  • Infant industry protection
  • Strategic trade policy (linked to development and infant industries)
  • National security (defence)
  • Standards (Health, Safety and Environment)
  • Developing countries trying to diversify
72
Q

QUESTIONABLE arguments FOR trade protection (i.e. AGAINST free trade)

A
  • Tariffs as a source of government revenue
  • Overcome a balance of payments deficit
  • Anti-dumping
  • Protection of domestic jobs
73
Q

INCORRECT argument FOR trade protection (i.e. AGAINST free trade)

A
  • Wage protection argument
74
Q

Table of protectionism:

A

IB Economics HL (15 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions