International Specialisation and Trade Flashcards
What is globalisation?
The increasing social, technological, political and economic interdependence and interaction between people, firms and entire economies around the world, through:
- increasing ease of travel
- growing international trade in an increasing variety of goods and services
- increasing opportunities for firms to buy and sell products in any country in the world
- increasing opportunities for labour and capital to move anywhere in the world
- the growth of global financial markets
Define
international trade
The movement and exchange of physical goods such as materials, component parts, equipment and finished products as well as services, ideas, capital, currencies and labour across international borders.
International trade enables countries to specialise in the production of different products in which they have an advantage, produce more output with their resources, and sell their surplus to one another.
Define
absolute advantage
The ability of a country or region to produce a good or service at a lower average cost per unit than any other country or region is able to.
Define
comparative advantage
The ability of a region or country to produce a goods or services at a lower opportunity cost than another.
Define
open economy
A national economy that engages freely in international trade.
Define
gains from trade
Economic benefits associated with international specialization and trade.
List the 6 gains from trade (advantages from international trade)
- Benefits from specialisation: output, incomes and living standards increase
- Increased consumer choice: variety from all over the world
- Increased competition and efficiency: competition in global markets is higher
- Increased business oppurtunities: growing consumer markets overseas, local market may be small
- Firms can benefit from the best workforces, resources and technologies from anywhere in the world
- Increased economic interdependency and therefore reduced potential for conflict
List 4 disadvantages of uncontrolled international trade
- Trade with low-cost economies is threatening jobs in many developed economies and reducing opportunities for less-developed economies to grow their industries
- Contributes to rapid resource depletion and climate change
- May increase exploitation of workers and the environment
- May increase the gap between rich and poor countries as developed countries use their purchasing power to force down global prices
Define
trade barriers
Government measures, such as tariffs and quotas, designed to restrict international trade and competition.
Define
protectionism
The use of trade barriers by governments to protect their domestic industries and employment from global competition.
List 5 trade barriers
- Tariffs: indirect taxes on imported goods
- Subsidies: grants paid to domestic producers so their prices are lower than imported goods
- Quotas: limit on the number of imports allowed in a time period
- Embargo: a ban on the importation of a particular product, or on all imports from a particular country
- Unreasonable quality controls and bureaucracy: standards and licensing requirements for imported products
What are customs unions?
Unions formed by neighbouring countries to trade freely with each other but to impose a common tariff on all goods and services imported from non-member countries.
Examples: European Union, South African Customs Unions and MERCOSUR between a number of countries in Latin America
What is an import license?
A document issued by a government customs authority approving the importation of certain goods into its territoy.
They can be used as a barrier to trade if they are issued selectively against another country’s goods in order to protect a domestic industry from foreign competition.
List 7 arguments for trade barriers
- To protect infant industries (sunrise industries)
- To protect sunset industries
- To protect strategic industries
- To protect domestic firms from dumping
- To limit over-specialisation
- To correct a trade imbalance
- Because other countries use trade barriers
Define
dumping
A form of international predatory pricing and unfair competition used by overseas producers to flood another country with cheap products to force its firms out of business.
