Chapter 24: International Trade

Question 1

Explain globalisation.

Answer 1

Refers to the world being one marketplace increasingly interconnected as a result of massively increased trad and cultural exchange. Biggest businesses no longer national companies. Companies are now going international as MNC’s. E.g. McDonalds

Question 2

Define domestic trade.

Answer 2

Buying and selling of goods and services in your own country

Question 3

Define open economy.

Answer 3

A country that imports and exports goods and services.

Question 4

Define Visible exports

Answer 4

Irish businesses sell products abroad. Physical goods are sent out of Ireland and this brings money into the country. E.g. Irish farmers sell beef to U.S.

Question 5

Define Visible imports

Answer 5

Irish businesses and people buy physical goods from foreign countries. Physical goods are coming into Ireland and money goes out of the country. E.g. Fruit from Africa.

Question 6

Define invisible exports.

Answer 6

Irish businesses sell services to foreign countries and this brings money into Ireland. E.g. British tourists stay in Irish hotel.

Question 7

Define invisible imports.

Answer 7

Irish businesses and people buy services from foreign countries and money goes out of Ireland. E.g. Irish family stays in hotel in Paris.

Question 8

Formula for balance of trade. (when defining these use previous definitions and say difference between def 1 and def 2)

Answer 8

Visible exports - visible imports

Question 9

Formula for balance of payments. (when defining these use previous definitions and say difference between def 1 and def 2)

Answer 9

Visible and invisible exports - visible and invisible imports

Question 10

Formula for balance of invisible trade. (when defining these use previous definitions and say difference between def 1 and def 2)

Answer 10

Invisible exports - invisible imports

Question 11

Explain four reasons why countries import.

Answer 11

Lack of natural resources: needed by businesses and consumers. E.g. Ireland does not have enough oil.

Unsuitable climate: Incorrect weather can’t grow certain crops. E.g. Ireland imports coffee from Kenya,

Lack of Skills: Other countries more traditionally skilled at making certain products. Consumers want best product so it is imported. E.g. German cars.

Competition: Importing provides greater competition leading to lower prices, better quality and greater choice for consumers.

Question 12

Explain four reasons why countries export.

Answer 12

Survival: Home market not big enough to make a substantial profit so sell abroad. E.g. Irish airplane factory exports to make sells.

Increase Sales and Profits: New markets lead to new customers. E.g. Supermac’s export to increase sales.

Economies of Scales: Making more products for international market means Irish business can products cheaper per unit and increase profit margins.

Diversification: Depending solely on one country is risky. Exporting spreads risk. E.g. Bailey’s survived Irish economic downturn because of sales in other countries.

Question 13

Functions of Enterprise Ireland that helps exporters.

Answer 13

Market research information on foreign opportunities.
Introduction to foreign contacts.
Financial Supports.
Training courses.

Question 14

Explain how department of business, enterprise and innovation helps Irish exporters.

Answer 14

Advice on documents and legal regulations.
Export credit insurance-promises to pay exporter if foreign customer doesn’t pay.

Question 15

Explain four advantages of international trade to the Irish economy.

Answer 15

Larger Markets: Increased Sales and Profits and more money coming into Ireland. E.g. Supermac’s exports to increases sales.

Economies of Scales: Making more products for international market means Irish business can products cheaper per unit and increase profit margins.

Job Creation: Increased sales from international trade means business can afford to hire more people. Less unemployment and higher standard of living. Government pays less social welfare and gets more tax receipts.

Competition: Competition from foreign firms forces businesses to keep costs low and quality high to compete. This leads to better product, cheaper prices and a wider range of choice for consumers. E.g. Tayto have to keep price low or consumers may switch to Walkers crisps.

Question 16

Define free trade.

Answer 16

Countries can buy and sell with other countries without barriers or restrictions placed in their way. E.g. EU countries practice free trade with each other.

Question 17

Define protectionism.

Answer 17

When countries use barriers to trade to try to restrict foreign imports and increase their own exports in order to help their own indigenous businesses do well.

Question 18

Define Tariff. (a protectionist measure)

Answer 18

A tax a country adds to the price of foreign imports. Higher price for consumers and they buy less. E.g. USA put tariffs on Irish whiskey to boost domestic whiskey sales.

Question 19

Define Quota. (a protectionist measure)

Answer 19

Country puts a limit on amount of foreign imports of a certain type it will allow. This helps indigenous Irish businesses limiting imports. No further imports over number are allowed. E.g. EU quota on import of Chinese clothes

Question 20

Define Embargo. (a protectionist measure)

Answer 20

Country puts a ban on all foreign imports to help indigenous businesses. Consumers have no choice but to buy local. Can also be for political reasons. E.g. Embargo of Russia over invasion of Ukraine.

Question 21

Define Subsidy. (a protectionist measure)

Answer 21

Money that a government gives to its indigenous businesses to allow them to sell products and services more cheaply. Helps businesses export more. E.g. EU gave subsidies to EU farmers so goods could be sold cheaply around the world, increasing sales.

Question 22

Explain four trends in international economy.

Answer 22

Globalisation: Increased number of global businesses who operate throughout the world. They treat world as one big market.

Improved ICT: Internet allows for E-commerce. Customers can buy products on website without need for physical premises. Small Irish businesses can advertise to the world on social media.

Increasing Number of Trading Blocs: Countries co-operating to increase trade. Impose tariff’s on imports outside the trading bloc. E.g. EU

Competition from Low Wage Economies: Increasing competition as workers paid less and businesses can reduce costs far better than Irish businesses. Impossible to compete on products that require unskilled workers.

Question 23

Explain trading bloc.

Answer 23

A group of countries who make a formal agreement to freely buy and sell from each other with no barriers to trade. Impose tarrifs on imports from outside trade-bloc. E.g. EU

Question 24

Explain deregulation.

Answer 24

Process of removing all the government rules and regulations that prevent free trade between countries. Presents Irish with opportunity to increase sales and profits by exporting freely all over the world. E.g. EU deregulated airline industry removing monopolies

Question 25

Explain Ireland’s competitive advantages (4)

Answer 25

Membership of EU: Businesses that set up here can sell anywhere in EU without tarrifs. Exporting is easier and cheaper. This increases business sales and profits.

Educated Workforce: Well educated workforce in Ireland. Excellent education helps Irish entrepreneurs invent new products and also makes Irish people highly employable for companies that rely on innovation. E.g. Google

English Speaking: English is the international language of business. Irish people can automatically converse with other businesses worldwide in English. Prevents communication barrier.

Green Image: International image of being a clean and unspoilt country. Easier to sell food and attract foreign tourists as they trust the Irish green image. E.g. Made in Ireland sticker increases sales.

Question 26

Explain the challenges facing Ireland in international markets (4).

Answer 26

Foreign Languages: Foreign companies want to use their own language which leads to communication problems. Website must be in multiple languages with brand name appealing internationally. Costs time and money. E.g. Supermacs translates website into French to open new market there.

Distribution Problems: Ireland is an island without a land link to EU. Transporting goods is more difficult and expensive. Must conform to shipping and airline companies timetables and weather. E.g. Exports put on hold when all flights cancelled due to volcano eruption.

Competition from low wage based economy: Increasing competition as workers paid less and businesses can reduce costs far better than Irish businesses. Impossible to compete on products that require unskilled workers.

Cultural Differences: Different notions of what is acceptable behaviour. Must learn cultural norms of trading partner as they don’t want to lose business by offending them. E.g. Revlon perfume scented like camellia flowers failed in Brazil because it is a funeral flower.

Question 27

Explain five advantages of the development of ICT for international trade.

Answer 27

Video Conferencing-Enables people from all over the world to communicate effectively and reduces costs with smaller premises required.

Social Media-Advertise to a global market cheaply. Much cheaper than traditional forms and can reach specific target market and develop a global brand.

E-commerce-Selling goods online on an international scale, reduced delivery costs and increased sales as the business can reach new customers.

E-mail-Faster than written communication and can be re-read. Is the ideal form for complex messages and saves business time and money.

Decision Making-Lots of information on the internet to help business make better decisions. Download free information from internet in seconds on a wide range of topics. E.g. Entrepreneur can take free accountancy course online to save money of hiring accountant.