International Trade Flashcards
What’s globalisation
An increasing shift towards global trade where you can source goods from all over the world
What are the characteristics of globalisation
Free trade
Free movement of labour
Free movement of financial capital
Free interchange of technology and intellectual capital across national boundaries
Pros and cons of globalisation
Pros:
More wealth due to more exports
Lower prices due to increased competition and cheaper COP
More diverse markets
Less absolute poverty
Labour mobility better
Cons :
Income inequality up
More dependent on others
Environmental damage
Balance of payments can become an issue
Working conditions can worsen
Rise of protectionism
What is the role of the world trade organisation
To police trade agreements and negotiations, dispute settlement, facilitate trade
What is absolute advantage
A country’s ability to produce a good using less resources than another country
What is the law of comparative advantage
A theory arguing that there may be gains from trade arising when countries specialise in the production of goods or services in which they have a comparative advantage
What is the law of comparative advantage
A theory arguing that there may be gains from trade arising when countries specialise in the production of goods or services in which they have a comparative advantage
Pros and cons of international trade
Pros:
specialisation increases global output
Economises of scale - costs reduced via trade.
Better consumer choice so consumer welfare up
Innovation - free trade leads to increased competition so innovation incentivised to get ahead
Cons:
Overdependence
Employment in some countries may fall
Income inequality
Environment damage
Loss of sovereignty - less control
How is comparative advantage different to absolute advantage
Comparative advantage when the opportunity cost of production is lower for a country
What is the trading possibility curve
A representation of all the combinations of two products that a country can consume if it engages in international trade
Protectionism pros and cons
Pros:
Less imports so balance of payments better
Gets government tax revenue (tariff)
Prevent firms from selling abroad in times of shortage
Reduce reliance on other countries
Infant industries protected
Cons:
Decreases competitiveness of foreign firms
Likely hurts trade relations
Shortage
Welfare loss to consumers
Government failure can occur
Can allow firms to be less efficient
Can reduce quality of goods being produced and consumed
Retaliation
Regressive, because price increases affect lower income households more
What is the intention behind protectionism
To make foreign goods more expensive and hence less price competitive than domestic goods
What are the main methods of protectionism
Tariffs, quotas subsidies
How do you model tariff impact
Line above Sworld
how do you model quota impact
supply shift to the right of Sdomestic + quota
