CH7: Free trade Flashcards
What is free trade?
The ability of companies in different companies to buy and sell goods from each other without intervention
Why are exports needed?
to finance imports that cant be provided by country
What are the advantages of free trade
comparative advantage
larger markets - economies of scale
increased competition increase efficiency decrease price
Why are imports important during a boom?
satisfy excess demand - reduce demand-pull inflation
What is comparative advantage
=beneficial for parties to trade if one has a lower relative cost of production
for a mutually beneficial trade, a acceptable terms of trade must be established
What are examples of international trade institutions
World trade organisation
EU
G7
What are the 5 types of trade agreement
Free Trade area
Custom union
Common market (or single market)
economic union
What is a free trade area?
no restriction on the movement of G + S between
(difference in indiv restrictions with other countries)
What is a customs union
FTA + common external tariff on imports from non members
What is a common/single market
Customs + free movement of G+S, labour and capital
What is an economic union
common market
central bank, single currency
-national policies unified/harmonised
What is a trade agreement basic
bilateral/multilateral - lower trade barriers in participating countries
increasw degree of common integration
what are protectionist policies
ones that protect the home market
Arguments in favour of protectionist comanies (economic)
-small industries (potential for comp advantage, but need to develop - EoS) - short term protection
-dumping
-improving BoP
-Externalities
what is dumping
selling a good below its cost of production
