4.1.3 - Pattern of trade

Question 1

Factors influencing the pattern of trade between countries and changes in trade flows between countries

Answer 1

o comparative advantage
o impact of emerging economies
o growth of trading blocs and bilateral trading
agreements
o changes in relative exchange rates

Question 2

Define comparative advantage

Answer 2

Comparative advantage is an economic principle that suggests countries should specialize in the production of goods and services in which they have a lower opportunity cost compared to other countries. In other words, countries should produce what they are relatively more efficient at producing.

Question 3

How to relative exchange rates affect pattern of trade

Answer 3

• The exchange rate affects the relative prices of goods between countries.
• Prices are an important factor in determining whether consumers buy goods and so a change in price of exports will affect the pattern of trade. It can be argued
  that the UK’s trade deficit with Europe is due to the strength of the pound. China
  have kept their currency weak in order to increase their trade surplus by making
  exports more price competitive explaining why they accounted for 14% of world exports in 2022, making them top exporter in the world

Question 4

Discuss the general factors affecting pattern of trade

Answer 4

These factors do not operate in isolation but interact with each other to shape global trade patterns.

For example, changes in exchange rates can affect the competitiveness of emerging economies’ exports, and the growth of trading blocs can influence the ability of countries to leverage their comparative advantages within those blocs.

Question 5

How does comparative advantage affect POT

Question 6

Evaluate the view that patterns of trade ave shifted towards china

Answer 6

However, since China’s population is now ageing, their wage competitiveness has fallen. This is also due to the rise of the middle class in China, who demand higher wages and consume
more.

Question 7

Explain how comparative advantage has changed patterns of trade recently

Answer 7

• recent growth in the exports of manufactured goods from
  developing countries to developed countries.
• WHY: developing countries
  have gained a comparative advantage in the production of manufactured goods, due to their lower labour costs, so production shifted abroad. The deindustrialisation of countries such as the UK has meant the manufacturing sector has declined. This means that production o f manufactured goods has shifted to other countries , such as China,
• whilst the UK now focuses more on services, such as finance.
• SO LINK: This has led to the
  industrialisation of China and India as they specialise in their comp advant of manufacturing (india also has IT services which is now becoming more crucial to the world . Their share of world trade has risen and the volume of manufactured goods that they export has increased.

Question 8

How do trading blocs and bilateral trading agreements affect patterns of trade

Answer 8

• These agreements can significantly impact trade flows.
• Within trading blocs, member countries often enjoy reduced tariffs and trade barriers, leading to increased trade among them. Bilateral agreements can create preferential trading relationships between specific countries, boosting trade in specific sectors
• often leads to trade diversion and developing countries cannot specialise in their comparative advantage as a result so loss in world efficiency

Question 9

Define emerging economies

Answer 9

Emerging economies are countries that are in the process of rapid industrialization and experiencing significant economic growth. Examples include China, India, Brazil, and russia - BRIC

Question 10

How does factors of production affect pattern of trade

Answer 10

availability and accessibility to FOP; capital, land and labour affects a country’s Comparative advantage