3.1.2 trade and growth Flashcards
What is free trade?
The act of trading between nations without protectionist barriers, such as tariffs, quotas or regulations.
It can increase world GDP, since output increases when countries specialise.
What have trading blocs led to?
Trade creation between members, since there is free trade within the bloc. However it has also diverted trade from outside the bloc, since protectionist barriers are often impose on countries who are not members.
What does the WTO do?
Promotes world trade through reducing trade barriers and policing existing agreements. Also settles trade disputes and organises trade negotiations.
How many members of the WTO are there as of 2024?
166.
Why has there been recent growth in the exports of manufactured goods from developing to developed countries?
Developing countries have gained an advantage in the production of manufactured goods, due to their lower labour costs.
Why has China’s wage competitiveness fallen?
Due to their now ageing population and the rise of a middle class, who demand higher wages and consume more.
What does Norway specialise in?
It is one of the world’s largest oil exporters.
What is a comparative advantage?
Producing a good at a lower opportunity cost to another country.
What is an absolute advantage?
When a country can produce more of a good with the same factor inputs.
What are the advantages of specialisation in goods to trade? [4]
- Greater world output, so there is a gain in economic welfare
- Lower average costs, since the market becomes more competitive
- There is an increased supply of goods to choose from
- There is an outward shift in the PPF curve
What are the disadvantages of specialisation in production of goods to trade? [2]
- Less developed countries might use up their non-renewable resources too quickly, so they might run out
- Countries could become over dependent on the expert of one commodity
What benefits does free trade provide? [5]
- Countries can exploit comparative advantage, leading to higher output using fewer resources and increases world GDP, improving living standards
- Free trade increases economic efficiency by establishing a competitive market. This lowers the cost of production and increases output
- By freely trading goods, there is trade creation because there are fewer barriers. There is more consumption and large increases in economic welfare
- More exports lead to higher rates of economic growth
- Specialising means countries can exploit economies of scale, lowering average costs
What is FDI?
The flow of capital from one country to another, in order to gain a lasting interest in an enterprise in the foreign country.
What are the benefits of FDI? [3]
- Can help create employment
- Encourages the innovation of technology
- Helps promote long term sustainable growth
