5.3 International Trade Flashcards
What is international trade?
Buying and selling of goods and services across international boundaries.
What is an export?
Something a country makes domestically and sells
What is an import?
Something a country buys/purchases from other countries.
What is free trade?
Absence of government intervention in international trade (trade without restrictions).
What are four benefits of free trade?
- Increased competition
- Specialisation
- Greater choice for consumers
- Increased flow of new ideas and technologies.
How is increased competition a benefit of free trade?
Firms forced to become more efficient, try to produce at lowest possible cost.
What does it mean by ‘greater choice for consumers’ as a benefit of free trade?
Countries can import higher quality input materials than the ones that have themselves. Consumers can buy better things.
How does is specialisation a benefit of free trade?
Countries do not need to produce everything that is consumed. Instead, can produce select things (specialise in) and become more efficient.
What is absolute advantage?
When a country, with same amount of resources, can produce more goods than another.
What does the theory of absolute advantage propose?
When a country exports gods they have absolute advantage in, increased production and consumption. This raises material living standards.
What are negatives of free trade?
- Increased unemployment
- ‘Infant’ domestic industries cannot develop
- Predatory pricing
- Loss of culture
Why does increased unemployment occur due to free trade?
Have to compete with lower costs, causing businesses to:
- Outsource labour overseas where cheaper
- Replace labour with machinery.
What is an infant industry?
Industry in early stages of development
What does it mean by ‘infant industries cannot develop?’
infant industries cannot compete with efficient and cheaper, high quality businesses overseas and therefore are forced to shut down.
What is predatory pricing?
Businesses price goods + services so low, where other companies cannot compete and forced to leave market.
-Some operate at loss to keep prices low to eliminate competition
