HL - Trade Flashcards
what is international trade?
the exchange of goods and services between countries
what is free trade?
trade without any barriers
why might a country engage in international trade? (8)
Different factors of endowments
Greater choice and quality of goods/services
Lower prices - countries with cheaper products from having cheaper raw materials
Economies of scale - firms have access to larger markets, thus expanding scale of production and produce products at lower average costs.
Increased competition for domestic producers - forces firms to lower costs to remain competitive and be allocative efficient.
Increased economic growth - exports are an injection into circular flow of income; increases national income.
Specialisation leading to more output, due to different factor of endowments
A source of foreign exchange
What are the advantages to protectionism?
Protects local industries and jobs, leading to more output. Possible higher levels of actual growth.
Reduces cyclical employment.
Should improve the balance of payments.
What are the disadvantages of protectionism?
Might encourage more smuggling
Decrease in investor confidence
Might decrease R and D because competition decreases; there’s less incentive
Higher prices due to tariffs
Slower Potential growth due to lack of innovation.
What is an example of protectionism?
Indonesia, 2015, to help economic growth as it had slowed to 4.7% which is much lower than needed. It was also to help the value of the rupiah, which had lost nearly 12% of its value. mainly protected Indonesian consumer goods.
What are the different methods of protectionism?
Tariffs Subsides Voluntary export restraints Administrative Barriers Health and safety standards Exchange controls Embargo Quotas
What is a tariff?
A tax imposed on imports, either specific or ad valorem
What is a subsidy?
An amount of money given to firms by the government per unit of output.
What is a voluntary export restraints?
Restrictions on exports, which exporting countries often agree to in fear of worse restrictions that may come if they don’t.
