International Trade

Question 1

Absoulute advantage

Answer 1

Country being able to produce more cheaply or efficiently than others

Question 2

Comparative advantage (comparative cost theory)

Answer 2

Production of a good at lower opportunity cost than another country
If two countries trade on this basis, concentrating on goods where they have a comparative advantage they can both end up better off

Question 3

The impacts of protectionism

Answer 3

Gains: the firms and workers who are protected (DOMESTIC PRODUCERS) can sell more of their goods in the HOME MARKET
More demand for domestic workers —-> more jobs
Losses: consumers lose out by paying a higher price
Lower Choice and variety of goods

Question 4

New trade theory

Answer 4

Countries are better off specializing in the production of some goods and importing the rest
More production of goods —> specialization—> economies of scale - lower cost of production—> beneficial trade

Question 5

Trade policy after WW2

Answer 5

It’s good to have freer trade
Since 1945- lowering of trade barriers
GATT —> WTO
The motivation was to end or reduce protectionism or barriers to trade that went up in the 1930s
Post-war trade liberalisation

Question 6

The case against free trade

Answer 6

Creates losers as well as winners
Comparative advantage- could lead to some groups losing out
Winner countries —> compensate (compensation) , unemployment benefits , dignity of work

Question 7

Trade in goods
Tarde in service

Answer 7

Visible trade
Invisible trade

Question 8

Barter

Answer 8

Direct exchange og goods, without the use of money

Question 9

Balance of trade

Answer 9

The difference between what a country receives and pays for its exports and imports of goods

Question 10

Balance of payment

Answer 10

The difference between a country’s total earnings from exports and its total expenditure on imports

Question 11

Autarky

Answer 11

The impossible situation in which a country is completely self-sufficient and has no foreign trade

Question 12

Surplus
Deficit

Answer 12

A positive balance of trade of payments
A negative balance of trade of payments

Question 13

Dumping prices

Answer 13

Selling goods abroad at or below cost price

Question 14

Protectionism

Answer 14

Imposing trade barriers in order to restrict imports

Question 15

Tariffs

Answer 15

Taxes charged on imports
They raise the price to customers and make them less attractive

Question 16

Quotas

Answer 16

Quantitative limits on the import of particular products or commodities

Question 17

Subsidy

Answer 17

Benefit given by the government to producers usually as cash payment or tax reduction to help them sell at lower price

Question 18

Trade sanction

Answer 18

A trade penalty imposed by one nation on one or more other nations usually for political reason

Question 19

Import substitution

Answer 19

When a country produces and protects goods that cost more than those made abroad

Question 20

Why do countries restrict trade/ practice protectionism

Answer 20

1. To protect infant industries —> so they can grow, develop economies of scale and become globally competative
2. To protect declining industries —> so their decline is slower to protect jobs in those sectors
3. To protect strategic industries —> they are essential to the country (agriculture)
4. To protect non-renewable resources —> limit oil output
5. To deter unfair competition —> stop using dumping prices in the home market
6. To help the enviroment by not letting harmful products enter the country
7. For political reasons
8. Tariffs generate revenue for a government
9. Abandoning less efficient industries can lead to structural unemployment

Question 21

Infant industry

Answer 21

An industry that is in an early stage of development
cannot survive competition from foreign companies

Question 22

Strategic industry

Answer 22

An industry that is particulary important to a country’s economy.

Question 23

Declining industry

Answer 23

An industry which experiences negative growth
Or
remains stagnant due to decline in demand of one or more of its products

Question 24

barriers on trade (5)

Answer 24

Tariffs
Quotas
Subsidies
Embargoes
Trade sanctions