Free trade / protection Flashcards
What are the advantages of free trade (7)
Specialisation
Gain goods/services that a country cannot produce themselves
Specialisation in certain industries
Higher living standards
Efficient use of resources
Encourage innovation
International competitiveness
Disadvantages of free trade
Increase in unemployment (short term)
Less advanced economies struggle to establish new industry
Increase in dumping
Environmentally irresponsible production
Labour exploitation
List reasons for protection
Infant industry shielding
Prevention of dumping
Protection of domestic employment
Self sufficiency for national security (defence)
stop labour exploitation
environmentally sustainable practice
Methods of protection
Tariffs, Quotas, Subsidies, Local Content Rules, Export Incentives
What effects do tariffs have on the economy
Consumers pay higher price for fewer goods
Retaliation effect from countries that a tariff applies to
What effects do quotas have on the economy
Consumers pay higher price for fewer goods
Stimulates domestic production and employment
What effect do subsidies have on the economy
Producers can supply a greater quantity
Consumers pay a lower price and recieve more goods (subsidy shifts supply right) consumers indirectly pay more through higher taxes
Direct budget cost, less money for other services
Draw tariff graph
See notes
Two examples of trade agreements
Trans Pacific Partnership - TPP-11 represents 15% of global trade
Association of South East Asian Nations (ASEAN) - 4% of global economy
What is comparative advantage?
Nations specialising in areas of production to lower global opportunity cost
What is globalisation?
When economies of countries are linked to each other, changes in one can have effects on others
What is in the current account
Net goods + services
Net primary income (foreign debt)
Net secondary income
