International Trade Flashcards
What is Free Trade?
Free Trade is a policy whereby government does not attempt to restrict imports or exports to or from other countries.
Benefits of Free Trade?
Increases production and consumption due to the efficiency gained through specialisation.
What is specialisation?
When the economy, concentrates on the production of goods and services in order to become an efficient producer of these products.
Political benefits?
greater reliance on each other for goods and services encourages countries to co-operate with one another and avoid conflicts such as wars.
Absolute Advantage
The ability of an economy to produce a product by using fewer resources than another country.
Comparative Advantage
The ability of an economy to produce a product at a lower opportunity cost than another country.
Protectionism
Government policies or actions that restrict or prohibit international trade.
Tariff
Taxes imposed on imports
Quotas
Impositions of quantitative limits on the level of imports allowed into the country.
Voluntary Export Restrain Arrangement
Two countries making an agreement to limit the volume of exports to one another over a period of time.
Embargoes
Pass laws to totally ban all to some particular product.
Voluntary Export Restrain Arrangement
involves two countries making an agreement to limit the volume of exports to one another over a period of time.
Import Licensing
govt. may require importers to apply for a license to import goods and services, to issue a limited number of licenses.
What does Free Trade lead to?
- Increase in total production and consumption
- Greater efficiency of economies of scale.
- Overall employment increases.
Infant Industry Argument
New industries need protectionism from foreign exports because firms are not ready to compete with foreign competitors.
