international economics

Question 1

imports def

Answer 1

goods coming in to a country

Question 2

exports def

Answer 2

goods going out fo a country

Question 3

what is free trade

Answer 3

trade existing with no restrictions on the flow of goods and services between countries - no government intervention

Question 4

example of a free trade area

Answer 4

the EU

Question 5

what is an absolute advantage

Answer 5

a situation where a country can produce more of a good or service using fewer resources than that of another country

Question 6

what is comparative advantage

Answer 6

where a country can produce a good at a lower opportunity cost to another country

Question 7

how to find out comparative advantage

Answer 7

make ratios of what is produced - the country with the lower opportunity cost

Question 8

comparative advantage on graph

Answer 8

axis with largest difference in PPFs - comparative advantage in that good (one on the outside)
the other country has the comparative advantage in the other good

Question 9

limitations of comparative advantage

Answer 9

• assumes all FOPs are perfectly mobile - can switch anything to anything
• assumes opportunity cost rations remain unchanged - not true if efficiency changes in different industries
• depends on exchange rates
• assumes model of perfect free trade - no factoring in of protectionism

Question 10

specialisation def

Answer 10

when economic units such as individuals, firms, regions or countries concentrate on specific goods or services

Question 11

how to units get more efficient and effective at what the produce when they specialise

Answer 11

• greater understanding of the production process
• each unit can specialise at what they’re best at
• efficient use of time - no task switching
• technical EoS as capital is needed to produce g+s

Question 12

advantages of specialisation

Answer 12

• allows for trade
• improved GDP
• EoS - lower costs
• greater consumer choice
• better quality goods
• interdependence - better relations between countries

Question 13

disads of specialisation

Answer 13

• overreliance on industries and countries
• risk of structural unemployment
• reliance on other nations
• threat od external shocks or factors
• less developed countries may be prevented from moving into new sectors

Question 14

ads of spec WITH trade

Answer 14

• increased global output as a result of comparative advantage
• greater competition - international borders opened
• employment opportunities - as labour is derived demand, and aggregate demand everywehre is increasing
• improved quality of g and s - increased competition and dynamic efficiency

Question 15

disads of spec WITH trade

Answer 15

• over specialisation - may cause problems if the world’s demand falls
• structural unemployment - overspec can cause this if demand falls
• infant industries can’t grow - hard to compete with MNC or other lower prices