3.1.2 Trade and growth

Question 1

tariffs

Answer 1

Taxes on imported goods → protect domestic products as imports are less price competitive

Question 2

trade liberalisation

Answer 2

Reducing barriers to trade so that economies can move gradually closer to free trade, no trade barriers at all

Question 3

specialisation

Answer 3

Producing more of the goods and services that have a competitive advantage → can be enhanced by economies of scale

Question 4

outsourcing

Answer 4

Buying in G/S from other businesses

Question 5

supply chain management

Answer 5

Organising processes that lead to sale of the final product

Question 6

supply chain

Answer 6

Sequence of processes, some that may be outsourced to different businesses

Question 7

comparative advantage

Answer 7

If two countries specialise in the product with the lowest opportunity cost and then trade, real incomes increase for both

Question 8

how has ease of trade changed

Answer 8

• Tariffs introduced to keep high demand for domestic goods → imports were more expensive in comparison
• Had same effect on their exports, so decided to altogether reduce trade barriers to make their products cheaper
• Increased economic growth and spending power
• Free trade opens up new markets
  Trade negotiations between govs reduced trade barriers → gave businesses everywhere chance to develop products for international markets and expand output → TRADE LIBERALISATION

Question 9

trade barriers reduction with the WTO

Answer 9

• Aim is to oversee and regulate international trade
• 97% of world trade
• Main objective is to make smooth trade, promote free trade and encourage economic growth by reducing barriers
• Forum for trade negotiations, facilitating trade agreements
• Helps developing nations with technical matters and training programmes
• Dispute resolution for member countries with trade disagreements

BUT
- Accused of favouring rich countries at the expense of developing ones
- Some doubt tha free trade and liberalisation are the best solutions for developing nations

Question 10

imposing a tariff

Answer 10

• Tariff is tax on import
• S shifts up
• New equip at higher price
• Demand imports contracts q—>q1
• Consumers buy domestic substitutes
• It depends on Elasticity —> if something is luxury high price won’t affect demand

Question 11

removal of a tariff

Answer 11

• Liberalisation
• Lowers prices
• Consumers standard of living - increases with more disposable income
• Firms costs decrease

Question 12

imposition of a quota

Answer 12

• Limit amount of good
• New equip at higher price
• Lower quantity of imported good
• Encourage consumers to buy domestic goods
• Increase quota to allow more trade
• Shift right to led price decrease but quantity increase (remove quota)

Question 13

specialisation in a country

Answer 13

• Specialisation in a product where you have competitive advantage and exporting → can increase total output if other countries do the same
• Identify products with competive advantage
  Specialise in this area
  Use increased export revenue to buy cheap imports
• Specialisation leads to enhances economic growth, GDP and personal incomes increase
• The link between trade and growth → higher exports increase GDP, as they increase AD as an injection

Question 14

specialisation and firms

Answer 14

• Specialisation is linked to the division of labour
• Individuals specialise and become more competent in their work
• Fewer employees are needed
• The availability of finance for investment allows firms to use the best tech available
• The productivity of both capital and labour increases
• Production costs are reduced and competitive advantages emerge
• Increases efficiency, output and economies of scale

Question 15

risks of specialisation

Answer 15

• Over reliance on one area of economy increases risk
• Comparative advantage can move elsewhere eg shipbuilding and britain → structural unemployment
• Commodity prices fluctuate and emerging economies rely on them
• Natural resources can run out
  Increases overeliance on imports for other goods and services

Question 16

trade liberalisation and economic growth

Answer 16

• TL makes it easier for businesses to export → find new markets, creating opportunities to specialise and benefit from economies of scale
• Many businesses benefit if they are adaptable and accustomed to functioning in a dynamic economy, especially if they can operate efficiently
• When trade is growing, businesses with CA can expand quickly
• Some businesses find it difficult to adapt to global demand → may shrink or many be closed down
• Associated with structural change
• works best when all countries have an equal playing field

Question 17

trade liberalisation and changing supply chains

Answer 17

• B2B providers contribute to finished product in supply chain
• Chosen because they are the most efficient suppliers, having competitive advantage in whatever they supply
• Nowadays, alot of this its outsourced by offshoring
• Help cut costs and give many EE faster economic growth
• Complex supply chains rely on trade liberalisation to keep trade barriers at low levels
• Create opportunities for new businesses to grow, by minimising resource costs of production → open up new markets and spread expansion over many locations
• Supply chain management can make it easier for businesses to adapt flexibly to dynamic markets that keep on changing

Question 18

foreign direct investment and link to growth

Answer 18

• Reduction in trade barriers increases FDI as business increase factories/distribution abroad
• Much FDI flows from one developed country to another to another but increasingly, FDI is flowing into emerging and developing economies

Question 19

FDI and offshoring production

Answer 19

• FDI may be associated with the offshoring of production to countries with lower input costs or with production in foreign markets
• Eg china investment in and out of the country → eg in african countries for raw materials
• India is now powerful enough to acquire some of the world’s leading companies → Tata and Tetley, JLR, spent 15 million dolards
• Can increase FDI in a country within a coveted tradunf block like the EU to avoid paying tariffs → Britain has lost this advantage with Brexit

Question 20

governments welcoming FDI

Answer 20

• Almost all governments welcome FDI because it provides finance for investment and helps create jobs
• Especially when the country has little money for investment itself
• Not just for developing countries → Nissan and England due to unemployed skilled workers due to deindustrialisation

Question 21

ways to attract FDI for investment

Answer 21

• Lower corporation taxes
• Subsidies
• Flexible labour markets
• Investment in infrastructure

Question 22

FDI is good

Answer 22

• Infrastructure accelerator
• Higher capital intensity
• Better training for local workers, improved human capital
• Grows a countries export capacity
• More competitive in markets
• Created new jobs, increasing incomes and savings
• Even if FDI is gone, workers retain skills

Question 23

FDI is bad

Answer 23

• Inequality
• Ethical standards from MNCs may be poor
• Volatile FDI
• Monopsony power of of TNCs
• Especially bad if gov has less power than MNC