international trade

Question 1

international trade

Answer 1

the exchange (buying, selling, importing, exporting) of goods and services across international territories
characteristic of an open economy

Question 2

advantages of international trade

Answer 2

• obtain a variety of goods/services
• obtain essential raw materials/ energy sources
• companies do it to increase sales
• increases competition
• more employment

Question 3

visible imports/exports

Answer 3

visible goods

Question 4

invisible imports

Answer 4

purchasing of services from abroad

eg irish people going on foreign holiday

Question 5

invisible exports

Answer 5

irish firms selling services overseas

eg foreign tourists holidaying in Ireland

Question 6

balance of payments

Answer 6

a record of a countrys monetary transactions with the rest of the world for a period of time usually one year

• current account
• capital account
• financial account

Question 7

BOP on current account

Answer 7

items of a recurring nature
total exports - total imports
includes:
-goods
-services
-incomes
-current transfers

Question 8

current transfers

Answer 8

subsidies and monies receivable from and taxes paid to the EU
also includes interest paid on the foreign part of national debt

Question 9

irelands net factor income

Answer 9

negative due to large FDI multinationals and large non national population

Question 10

BOP on capital account

Answer 10

non recurring nature
record of a countrys receipts and payments for capital items ie buildings, tech
plus:
amounts received under EU regional development fund
amount of acquisitions and disposals of non produced, non financial assets

Question 11

BOP on financial account

Answer 11

deals with transactions in foreign financial assets and liabilities
eg
direct investment

Question 12

consequences in BOP deficit

Answer 12

leakage of income from economy
fall in external reserves
rise in foreign borrowing
loss of jobs

Question 13

consequences in BOP surplus

Answer 13

injection of income into economy
rise in external reserves
fall in foreign borrowing
export led jobs

Question 14

deficit is not a concern when

Answer 14

• surpluses precede/ follow
• deficit on current account but surplus on capital account
• occurs because of exceptional, one off payments

Question 15

strategies to reduce BOP deficit

Answer 15

imports may be restricted (tariffs, quotas)
import substitution
encourage and stimulate exports
deflationary fiscal policy (increase taxes, decrease expenditure)

Question 16

law of absolute advantage

Answer 16

a country has an absolute advantage in the production of a good if less resources are required to make a unit of that good than is in the case in other countries

each country should specialise in the production of that good and trade for its other requirements

Question 17

law of comparative advantage

Answer 17

a country should specialise in the production of those goods/services in which it is relatively most efficient and trade for the remainder of its requirements

Question 18

how does specialisation encourage international trade

Answer 18

• greater efficiency in allocation of scarce resources and reducing waste
• greater independence - good relations
• increased wealth and rising aggregate demand
• economies of scale for businesses

Question 19

factors affecting competitiveness of irish firms in international trade

Answer 19

rate of inflation in Ireland
exchange rate of euro against others
government policies
labour costs

Question 20

free trade

Answer 20

states that there are no barriers to the movement of goods and services between countries

Question 21

disadvantages of free trade

Answer 21

protect against low wage competition
protect domestic employment
increase gov revenue (import duties/taxes)
protect indigenous firms

Question 22

protectionism

Answer 22

efforts by a gov to restrict free trade, particularly imports, using:
tariffs
quota
administrative barriers
trade embargo
export subsidy

Question 23

tariff

Answer 23

tax on imports

form of regulation on foreign trade to safeguard domestic industry

Question 24

quota

Answer 24

physical limit placed by a gov on the amount of a certain good allowed to enter a country

Question 25

administrative barrier

Answer 25

obstacles including paperwork, bureaucracy and red tape that can be offputting to companies seeking to export in that market

Question 26

trade embargo

Answer 26

complete ban on importing a good(s) from a country or a total ban on all trade to and from a country

Question 27

terms of trade

Answer 27

refer to the ratio between the average price of exports and the average price of imports ie what a given volume of exports will buy imports/the amount of imports that can be bought per unit of exports

Question 28

specialisation

Answer 28

where one country is more efficient than another in the production of a particular commodity, it should produce that commodity.
this will benefit the country itself and overall world output

Question 29

assumptions under law of comparative advantage

Answer 29

1. transport costs dont exist
2. law of diminishing marginal returns does not apply
3. complete mobility of FOP exists
4. alternate employment is available
5. equal distribution of benefits occurs

Question 30

sources of comparative advantage in Ireland

Answer 30

climate
educated and skilled workforce
low rate of corp tax
raw materials eg peat

Question 31

consequences of a decrease in another currency for Ireland

Answer 31

cheaper imports
FDI in ireland decrease
expensive exports
loss of employment

Question 32

subsidies

Answer 32

payments from gov/eu to domestic producers to support and encourage the production of a particular good/ reduce the producers average costs

Question 33

common market

Answer 33

member countries agree to trade freely with each other and impose common tariffs on countries that are outside the union
allows free movement of capital/labour within union