4.1 Importance of International Trade

Question 1

What is international trade?

Answer 1

• international trade is the exchange of goods and services between countries

Question 1

What are exports?

Answer 1

• exports are goods and services sold abroad

Question 2

What are imports?

Answer 2

• imports are goods and services produced abroad and bought in country

Question 3

What is the trade balance?

Answer 3

• the difference between the value of goods exported and goods imported

Question 4

What is absolute advantage?

Answer 4

• if a country can produce something at a lower average cost than another country then it has an absolute advantage
• if 2 countries have absolute advantage in 2 different goods then this allows them to increase global output of both goods and consume the other good

Question 5

What are some benefits of international trade for consumers ?

Answer 5

1. Increased choice of goods and services
2. Lower prices
3. More innovation and improved quality

Question 6

Benefits of international trade for producers

Answer 6

• access to a larger market to sell goods and services
• the opportunities to reduce average costs through:
• Economies of Scale
• Increased Competition
• Specialisation
• Greater Choice and lower price of inputs

Question 7

What is a free trade agreement?

Answer 7

• Free trade agreements allow the free movement of goods and services between countries

Question 8

What are 5 possible reasons for protectionism?

Answer 8

1. protecting domestic producers
2. trying to protect domestic jobs
3. import tariffs could be a means of raising government revenue
4. to prevent harmful goods from entering the economy or goods which do not meet domestic health and safety standards
5. For polictical reasons