Chapter 12 - international trade

Question 1

advantages of free trade

Answer 1

• specialisation can boost productivity
• allows natural advantage and obtain goods not usually produced
• increases competition = increased efficiency
• economies of scale from higher demand

Question 2

disadvantages of free trade

Answer 2

• imports sold at below production cost to destroy domestic firms (dumping)
• domestic firms may fail
• some industries need protection where they may be driven out
• some countries have unfair advantage, don’t pay living wages

Question 3

protectionist measures

Answer 3

1. TARIFFS = taxes to make imports more expensive
2. QUOTAS = restriction on no of items
3. SUBSIDIES TO DOMESTIC PRODUCERS

Question 4

free trade area meaning

Answer 4

exists when there is no restriction on movement of goods/services between countries

although individual members can have own restrictions on non members

Question 5

customs union meaning

Answer 5

fta maybe extended into customs union

• common external tariffs exist on non member nations

Question 6

difference between common market and single market

Answer 6

common market = free trade and free markets in factors of production and a move to standardise market regulations

single market = common market becomes single market with no restriction of movement or regulatory differences

Question 7

what is an economic union

Answer 7

in addition to common market features, involves a Central Bank and a common interest/single currency

Question 8

what is the world trade organisation

Answer 8

to support development of international trade

provides mechanism to identify and reduce trade barriers and resolve trade disputes

imposes fines on members in breach of rules

members cant offer selective free trade deals with another country without offering it to all WTO members

Question 9

imf purpose

Answer 9

to support stability of international monetary system

1. offers advice on economic policy
2. lends money

Question 10

what terms are attached to imf loans

Answer 10

• country should suppress demand to reduce M and increase X
• deflationary policies may damage multinationals profits by reducing sales in local market

Question 11

what is the world bank

Answer 11

lends to credit worthy governments in developing nations to finance investment in econ development/living standards

allows MNCs to participate in infrastructure projects through financial stability

Question 12

factors contributing to globalisation

Answer 12

• breakdown of some trade barriers
• emergence of MNCs
• improved communications

Question 13

what is an MNC

Answer 13

has production/service facilities in more than one country

Question 14

why do MNCs relocate (offshore)

Answer 14

• give access to markets protected by tariffs
• reduce transport costs
• take advantage of low labour costs

Question 15

what does PESTEL mean

Answer 15

Political
Economic
Social
Technological
Environmental/ecological
Legal

Question 16

what is PESTEL used for

Answer 16

to analyse opportunities and threats in external environment of a business

Question 17

three features of globalisation?

Answer 17

1. increased opportunities for growth
2. reduced barriers to international movement of the factors of production
3. increase in the volume of imports and exports as a proportion of national income