International Trade Flashcards
Absoulute advantage
Country being able to produce more cheaply or efficiently than others
Comparative advantage (comparative cost theory)
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
The impacts of protectionism
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
New trade theory
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
Trade policy after WW2
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
The case against free trade
Creates losers as well as winners
Comparative advantage- could lead to some groups losing out
Winner countries —> compensate (compensation) , unemployment benefits , dignity of work
Trade in goods
Tarde in service
Visible trade
Invisible trade
Barter
Direct exchange og goods, without the use of money
Balance of trade
The difference between what a country receives and pays for its exports and imports of goods
Balance of payment
The difference between a country’s total earnings from exports and its total expenditure on imports
Autarky
The impossible situation in which a country is completely self-sufficient and has no foreign trade
Surplus
Deficit
A positive balance of trade of payments
A negative balance of trade of payments
Dumping prices
Selling goods abroad at or below cost price
Protectionism
Imposing trade barriers in order to restrict imports
Tariffs
Taxes charged on imports
They raise the price to customers and make them less attractive
Quotas
Quantitative limits on the import of particular products or commodities
Subsidy
Benefit given by the government to producers usually as cash payment or tax reduction to help them sell at lower price
Trade sanction
A trade penalty imposed by one nation on one or more other nations usually for political reason
Import substitution
When a country produces and protects goods that cost more than those made abroad
Why do countries restrict trade/ practice protectionism
- To protect infant industries —> so they can grow, develop economies of scale and become globally competative
- To protect declining industries —> so their decline is slower to protect jobs in those sectors
- To protect strategic industries —> they are essential to the country (agriculture)
- To protect non-renewable resources —> limit oil output
- To deter unfair competition —> stop using dumping prices in the home market
- To help the enviroment by not letting harmful products enter the country
- For political reasons
- Tariffs generate revenue for a government
- Abandoning less efficient industries can lead to structural unemployment
Infant industry
An industry that is in an early stage of development
cannot survive competition from foreign companies
Strategic industry
An industry that is particulary important to a country’s economy.
Declining industry
An industry which experiences negative growth
Or
remains stagnant due to decline in demand of one or more of its products
barriers on trade (5)
Tariffs
Quotas
Subsidies
Embargoes
Trade sanctions
