4.1 Importance of international trade

Question 1

What is meant by international trade?

Answer 1

The exchange of goods and services between countries

Question 2

What are exports?

Answer 2

Goods and services sold abroad

Question 3

What are imports?

Answer 3

Goods and services bought from abroad

Question 4

What is international trade made up of?

Answer 4

imports and exports

Question 5

What are the reasons why countries trade?

Answer 5

• Different countries have different allocations of resources. These resources are relatively fixed in quantity over short periods of time e.g. it takes time to find more oil or to train more workers.
• the different levels of resources can make a country more suited to and relatively more efficient at making particular goods and services.
• this means that countries, and the world may be better off if each individual country specialises and trades with other countries to get a wider range of goods and services
• international trade, through specialisation, increases the productive potential of each individual country and encourages economic growth
• Ongoing trade negotiations resulting from international trade can improve political relationships between countries
• Specialisation may also mean use of fewer scarce resources globally, in other words, international trade may help the economic problem

Question 6

What are the benefits of imports and exports for consumers?

Answer 6

• lower prices as producers have to compete against a wider range of producers internationally in order to increase or maintain market share
• more innovative and better quality goods since producers may also respond to the increase in competition by investing in research and development so their goods and services become more desirable.
• consumers would have access to a greater variety of goods, especially goods that countries do not have the resources to be able to produce.

Question 7

What are the benefits of imports and exports for producers?

Answer 7

• they will have access to a larger market to sell, and with this, greater output is needed to fulfil the extra demand, so producers will benefit from greater economies of scale. This should mean that average costs will fall, which could lead to greater profits
• increased competition leads to greater efficiency as producers become more focused on how they produce, so they minimise their average costs and can compete on price.
• with a greater market, specialist producers can grow, leading to more benefits that come with specialisation, such as: less wastage of resources during production, increased productivity and output
• producers will be able to buy resources for their production worldwide. this may mean that they can find resources that are not available in their own countries or find resources at a lower price, which may lead to lower average costs

Question 8

What are free trade agreements?

Answer 8

the arrangement to move goods and services between countries without any restrictions

Question 9

When are the benefits of international trade only fully recieved?

Answer 9

When there is free trade

Question 10

What is protectionism

Answer 10

measures a government takes to give domestic producers an advantage over imports.

Question 11

What is one benefit of international trade to the country?

Answer 11

it can lead to less unemployment as more workers are needed to meet the extra demand and output

Question 12

What is the EU?

Answer 12

a group of countries that have joined together to make a range of agreements that affect the their laws and economies.

Question 13

What are there none of between countries in the EU?

Answer 13

There are no import taxes or fixed fixed quantities of imports and exports between EU countries.