4.1 Importance of International Trade

Question 1

What is international trade?

Answer 1

The exchange of goods and services between countries which is made up of imports and exports.

Question 2

What are imports?

Answer 2

Goods and services purchased from overseas.

Question 3

In which direction does money flow when a country imports a good/service?

Answer 3

There is an outflow of money from the domestic country to the overseas country.

Question 4

What are exports?

Answer 4

The goods and services a country sells abroad.

Question 5

In which direction does money flow when a country exports a good/service?

Answer 5

There is an inflow of money from the overseas country into the domestic country.

Question 6

What is meant by a domestic producer?

Answer 6

Producers within the home country.

Question 7

Why do countries trade?

Answer 7

Different levels of resources (CELL) can make a country more suited to producing particular goods and services. The specialised country can trade with others to gain other goods and services. This can help satify the basic ecnomic problem.

Question 8

What are three benefits of imports and exports for consumers?

Answer 8

1. Producers may lower their prices to become more internationally competitive.
2. Producers may invest in R&D, making their products better quality.
3. Consumers have access to a wider variety of goods - especially ones that their country doesn’t make.

Question 9

What are three benefits of imports and exports for producers?

Answer 9

1. International trade gives access to potential customers. If there is more demand, they can generate a higher revenue and gain economies of scale.
2. They can find resources for production that are not available in their countries or at a cheaper price.
3. Increased competition can lead to greater effiency and lower average costs.

Question 10

What is a free trade agreement?

Answer 10

Arrangement to move goods and services between countries without any restrictions.

Question 11

What is protectionism?

Answer 11

The opposite of free trade; when the government takes measures to give domestic producers and advantage over imports.

Question 12

What are some examples of trade restictions?

Answer 12

• Tariffs (taxes on imports)
• Quotas (when only a fixed amount of goods can be imported)

Question 13

What are benefits of free trade agreements?

Answer 13

1. Consumers may buy at a better price or quality from specialist producers.
2. Could reduce the use of scarce resources globally.

Question 14

Name an example of a group part of a free trade agreement.

Answer 14

The EU (European Union).

Question 15

What does free trade for EU mean?

Answer 15

• EU members don’t have tariffs and quotas from other members
• Prevents harmful competition in the EU
• Gives them greater bargaining power with other countries in the world

Question 16

What will happen to the free trade agreement if a member leaves the EU?

Answer 16

All trade deals will have to be re-negotiated with the EU and the rest of the world. This uncertainty can impact the economy negatively (less confidence = lower investments).