Chapter 37/38

Question 1

What are reasons for international trade?

Answer 1

Obtain goods unable to be made domestically, obtain goods that are cheaper abroad, selling off unwanted commodities

Question 2

Define free trade.

Answer 2

Situation where goods/services aren’t taxed/controlled.

Question 3

What are the advs of free trade?

Answer 3

• Lower prices + increased choice: No tariffs/quotas = cheaper, more competition = cheaper, + better quality (increased choice)
• Lower input prices: Can import cheaper resources so business costs lower.
• Wider markets for businesses: Can get EoS, reduces risk of failue bc more people to sell to.

Question 4

What are the disadvs of free trade?

Answer 4

Unemployment: Domestic industries are affected bc cheap imports take competition. This causes firms to make employee cuts (also worsens the current deficit).
Competition for domestic firms; MNCs can have lower prices due to low costs (EoS) so small domestic firms suffer and fail, creating overreliance.

Question 5

Define protectionism.

Answer 5

Govs attempt to protect domestic firms by restricting trade.

Question 6

What are the reasons for protectionism?

Answer 6

• Protect employment: cheap imports = comp, becomes expensive for domestic firms so reduce employees.
• Protect infant industries
• Gain tariff rev: money for gov, inc SoL
• Reduce current deficit
• Prevent dumping: the aim of dumping is to completely wipe out domestic comp.
• Prevent the entry of unwanted goods
• Reduce current deficits
• Retaliation: A gov can retaliate against overseas firms dumping by setting high tariffs- trade war.

Question 7

What are the methods of protectionism?

Answer 7

• tariffs: taxes on imports to restrict trade by making imports more expensive, so prices rise and demand falls for foreign goods (improves current account) also raise rev.
  -quotas: placing a physical limit on the quantity of imports , so supply falls and price rises. However, this may overprotect domestic firms so quality falls.
• subsidies: if a grant is given to domestic firms, it reduces their costs and increases demand. Also, more domestic firms can join the market which boosts exports + current deficit improves.

Question 8

What is an embargo?

Answer 8

A complete ban a certain import.

Question 9

What is dumping?

Answer 9

Foreign firms selling their goods at a price lower than their actual cost, to wipe out domestic firms.