Importance of international trade

Question 1

Exports

Answer 1

Goods and services sold abroad

Question 2

Imports

Answer 2

Goods and services brought from abroad

Question 3

International trade

Answer 3

The exchange of goods and services between countries

Question 4

Why countries import and export goods and services?

Answer 4

• Different countries have different allocations of resources.
• Different countries specialised in particular goods and services
• International trade increases the productive potential of each individual country and encourages economic growth

Question 5

Benefits of imports and exports for consumers

Answer 5

• Lower prices - producers compete against a wider range of producers internationally, so they reduce the price to keep or gain market share. They have lower prices due to greater specialisation or economics of scale so able to offer lower prices for their goods
• More innovation and better quality goods - producers may respond to increase competition by investing in research and development so their goods or services are more desirable
• Greater choice of goods - consumer can access to a greater variety of goods.

Question 6

Benefits of imports and exports for producers

Answer 6

• Access to larger market to sell goods and services - gives access to more potential consumers. With greater output needed to fulfil this demand, producers may benefit from economies of scale, lower average cost = greater profits
• Increase competition leads to greater efficiency - minimise average cost to compete on price
• Specialisation and lower average cost - greater market, specialist producers can grow, leading to benefits (less wastage of resources, increase productivity and output)
• Larger market for buying inputs and lower average cost - can buy resources worldwide

Question 7

Free trade agreement

Answer 7

Free movement of goods and services between countries without any restrictions