Chapter 10 Flashcards
Why do countries trade?
- One country cannot make product/don’t have resources
- One country can produce cheaper
- Country decides to import even if cheaper because it prefers to use production factors for other reasons
What are the three important developments which drove development?
- World opened to free trade
- Communications improved
- Cheaper transport
What causes sea trade ?
Shipping is a derived demand, thus we must understand the world economy to understand trade
Discuss protectionism as a policy tool
A policy of not trading, or limiting trade by tariff or quotas. Seeks to exclude goods of foreigners to protect livelihoods of local producers or for political reasons. Driven by those threatened by free trade.
How does international trade allow firms to move sourcing, manufacturing to cheaper locations?
Able to shop around the world for raw materials and new markets. As sea transport costs fell, new opportunities to move processing to cheaper areas, often nearer to the market, and then export as finished goods.
What are the three approaches of maritime economists?
- Primarily concerned with physical quantity of cargo vs trade economists focus on value of trade
- Interested in way the commodity composition of trade changes with economic circumstances vs trade economists interested in broad categories of trade
- More focused on geographical regions than nation states
How do maritime economists explain trade volumes of a country?
Seeing how trade relates to country’s general economic structure - uses three indicators : 1. land area 2. GDP 3. Population
Explain the balance of trade with a figure
Look in slides. Figure shows imbalance of supply and demand between the regions of the world
Discuss wealth and the link to seaborne trade. What are the reasons why rich countries (high GNP) have higher imports than other countries?
Larger the GNP and economy - the more trade
GNP - value of all finished goods and services produced in a country in one year by its nationals.
Reasons:
1. Larger economy has greater raw material needs
2. Mature economy used up resources now needs to import
3. Countries with high GNP can afford imports and has more to return
Discuss the link between land area and sea trade
It is more an inverse relationship between imports and size, small countries import a lot more than larger countries who have more resources. Not always the case (Singapore). Supply and demand also at play - where demand is high and no local resources = imports
Discuss the link between population and sea trade
Not really correlated - Japan imports more than China with 1 tenth of population.
What conclusion can be reached with all the info (sea trade is a function of:)
Economic activity and GDP. Growth in GDP drives trade. Population and land area not as important but do contribute
What is the reason for trade simply put
Someone makes a profit from it. This leads to the question of what makes trade profitable which is a difference in costs
Why products produced overseas cost less than local counterparts? (three fundamental reasons why countries trad)
- Difference in manufacturing costs
- Differences in natural resources
- Temporary shortages or surpluses which disrupt normal pricing process
Discuss the theory of absolute advantage in difference in manufacturing costs
- Theory of absolute advantage - specialisation leads to efficient use of worlds resources. One country is has more at one thing and another country better at another = trade your surplus for the other goods needed. Goods become cheaper with the division of labour and specialisation (more produced with same resources).
PROVIDED TRANSPORT COSTS DO NOT EXCEED SAVINGS GAINED
