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A Level Exonomics - Macro > 6.2 Trade > Flashcards

6.2 Trade Flashcards

1
Q

Trade definition

A

Concept involving the buy and selling of goods and services

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2
Q

Benefits of foreign trade

A
  • access to cheaper goods and services
  • greater range of goods and services
  • ability to lower average costs through specialisation
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3
Q

Absolute advantage definition

A

A country has an absolute advantage in the production of a product if it can be produced for a lower cost than in another country

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4
Q

Specialisation definition

A

When a country concentrates it’s productive efforts in producing one type of good

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5
Q

Comparative advantage definition

A

A country has a comparative advantage in the production of a product if it can be produced at a lower opportunity cost than in another country

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6
Q

What are the assumptions of the model of comparative advantage?

A
  • each country’s factors of production are fixed and cannot be improved upon
  • factors of production are immobile between countries
  • there are constant returns to scale (opportunity cost is constant)
  • transport costs are small enough not to cancel out the benefits of specialisation and trade
  • there are no barriers to trade (no tariffs or quotas)
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7
Q

How much does foreign trade count for of the UKs GDP?

A

30%

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8
Q

What are the changing patterns of the UK trade with the rest of the world?

A
  • the EU now accounting for the majority of both the UK imports and exports
  • gradual decline in the export of manufactured goods from the UK
  • growth in services exports
  • fasted growth in imports compared with exports
  • China and India becoming more significant for UK exports
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9
Q

Protectionism defenition

A

Implementing policies that will protect an economy through restrictions on imports

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10
Q

Arguments for protectionism (9 reasons)

A
  • protect infant industries
  • protect against ‘dumping’
  • protect domestic employment
  • protect against low cost labour abroad
  • protect product standards
  • to raise gov. revenue
  • improve current account deficit
  • to avoid risk of over-specialisation
  • protect sunset industries
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11
Q

Dumping definition

A

Sale of goods on foreign markets for below its cost of production

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12
Q

Infant industries definition

A

A small developing industry which cannot yet benefit from economies of scale

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13
Q

What are sunset industries and how does protectionism help them?

A

They are industries that are in long-term decline, protectionism allows them to decline in a more gradual manner = minimising demand shocks to the domestic economy

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14
Q

Tariffs definition

A

A tax on imported goods and services

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15
Q

How do tariffs work in terms of a protectionist policy?

A

They increase the price of imported products relative to domestic ones = contraction of demand for imports + increase in demand for domestic products

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16
Q

Was does the box in the middle of the tariff diagram signify?

A

Tariffs revenue generated

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17
Q

What is the the triangle left of the central box on the tariffs diagram signify?

A

The deadweight welfare loss of world efficiency

- as domestic producers are less efficient that the world producers

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18
Q

What is the the triangle right of the central box on the tariffs diagram signify?

A

Deadweight welfare loss of consumer surplus

- as consumers now have to pay a higher price for there goods

19
Q

Quotas definition

A

Quantity limit placed on the number of imports coming into a country

20
Q

What is the domestic quantity supplied after a quota on imports on a quota diagram?

A

They are still supplying 0-Q1 but now also supplying Q3-Q4 to take up the excess demand

21
Q

What has the demand contracted to on quota diagram due to the addition of a quota?

A

Q2-Q4

22
Q

What is the foreign quantity supplied after a quota on imports on a quota diagram?

A

It’s gone from Q1-Q2 and now shrunk to Q1-Q3

23
Q

What is the right had triangle on the quota diagram signify?

A

Deadweight welfare loss of consumer surplus

24
Q

What does the bottom triangle of the middle square on a quota diagram signify?

A

The deadweight loss of efficiency

25
Q

Export subsidy definition

A

A subsidy towards domestic supplier in order to reduce their cost of production, lowering their prices and allowing them to compete with world wide suppliers

26
Q

What does the raise price on a export subsidy diagram signify?

A

The price isn’t what they sell there products for, they still sell their products at Pw
But it is the effective price the domestic suppliers are getting

27
Q

How has the domestic supply changed on a export subsidy diagram?

A

Was 0-Q1 now 0-Q3

28
Q

How has imports changed on a export subsidy diagram?

A

Was Q1-Q2 now Q3-Q4

29
Q

What is the value of the subsidy on a export subsidy diagram?

A

The difference between the two supply curves = vertical distance x 0-Q3

30
Q

Issues related to protectionism

A
  • any use of a protectionism policy is likely to lead to a retaliation by the country affected by the policy
  • tariffs and quotas = increase price = loss of consumer surplus + loss of consumer choice
  • inefficiency occurs = bad allocation of resources
  • tariffs may be regressive = impacts the poor, loss of cheap goods for them
31
Q

Customs union definition

A

A free trade area between two or more countries with a common external tariff applied to all outside countries

32
Q

Free trade area definition

A

Trade without barriers, such as tariffs, between two or more countries

33
Q

Common market definition

A

A customs union that has other forms of economic integration, such as free movement of factors of production between members

34
Q

What are the main characteristics of a Single European Market

A
  • free movement of goods and services
  • free movement of workers and capital
  • common product standards and regulations
  • some fiscal coordination
  • a common external tariff on imports into the SEM
35
Q

Example of some fiscal coordination within the Single European market

A
  • member’s must have sale tax such as VAT of a leash 15%
36
Q

Arguments for leaving the EU

A
  • there was threat to competitiveness of domestic businesses, especially those with lower wage costs in EU
  • there will be trade diversion = new markets opened up + potentially lower prices goods available
  • can keep the £9 billion annual finacial contribution to the EU = used elsewhere
  • wages may be pushed downwards due to influx of migrants to the country = increase supply
  • need to comply with rules and regulations = extra costs for businesses
  • decisions taken by the EU may not be in the best interest of the Uk
37
Q

Background of the UK and the EU

A
  • joined the EU in 1973
  • votes to leave in the 2016 referendum
  • left EU on January 31st 2020 = transition period set to end on 31st of December 2020
38
Q

Arguments for remaining an EU member

A
  • lower prices due to price competition within the market
  • benefits of being able to buy products tariff free = lower prices
  • access for businesses to a larger supply of labour = better factor mobility to fill shortages
  • high quality standards = better products for consumers = improved utility
  • wider market to sell products as no tariff = increase consumption by EU members = EU makes up 23% of global GDP
  • improves development = migration
39
Q

Trade liberalisation definition

A

Trade without barriers or reduction in trade barriers

40
Q

What is the world trade organisation?

A

International organisation that regulates world trade

- currently has 164 member states

41
Q

What does the WHO promote or strive for?

A
  • trade should not be non-discriminating
  • trade should be as free from barriers and protectionism
  • promote fair competition
  • trade should be beneficial for developing countries through special provisions
42
Q

What are the functions of the WHO?

A
  • set and enforce rules on international trade
  • resolve trade disputes
  • provide a forum for negotiating trade liberalisation
  • to help developing countries fully benefit from global trade
43
Q

Conflicts between regional trade agreement and the WHO

A
  • trading blocs might distort world trade or adversely affect those who do not belong to them
  • conflicts between blocs could lead to a rise in protectionism
  • a common external tariff contradicts the WHOs principles
  • setting up a customs union or free trade agreement could be seen to violate the WHOs principles

A Level Exonomics - Macro (23 decks)

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