international trade Flashcards
what is international trade
the exchange of goods and services between the different economic agents of different countries
advantages of international trade
creates jobs in export industries - leads to the multipliar effect and therefore economic growth - improved living standards and more tax revenue for the government
benefits households by providing cheaper goods and services as well as more choice/stisfaction
benefits firms by providing cheaper raw materials, more choice, and more access to larger markets allowing economies of scale
disadvantages of international trade
may lead to structural unemployment due to more competition from overseas
downward pressure on wages due to competitin from overseas
the economy will become more vulnerable to external shocks arising i its trading partners
more environmental damage may occur due to the movement of goods and services between countries
countries may become over-reliant on foreign income
what is an absolute advantage
when an economy can produce goods or services cheaper than another country
at is a comparative advantage
an economies ability to produce at a lower oppertunity cost than its trading partners
what is the terms of trade and how is it calculated
the ratio between the price of imports and the price of exports - it does not look at the total value of imports or exports
index of average export prices/index of average import prices x100
an improvement would mean the pirce of exports has gone up more than the price of imports - but current account gets worse
a deterioration means that the price of exports has increased less than the price of imports - this leads to an improved current account
how does the exchange rate influence the terms of trade
if an exchange rate appriciates, imports will become cheaper and exports will become more expensive, improving the terms of trade but worsening the balance of payments
if an exchange rate depriciates, imports will become more expensive and exports will become cheaper, worsoing the terms of trade but improving the balance of payments
what is the marshall-lerner condition
states that a depreciation in the currency will only lead to an improvemtn in the current account of the balance of payments if the sum of elasticities for demand for imports and exports is elastic
the current account of the balance of payments will worsen if the sum of elasticities for both the demand for imports and exports is less than 1 (inelastic)
what is protectionism
the restriction of international trade
why migh protectionism take place
improve the balance of payments current account
protect domestic jobs
raise tax revenues from imports
what are the different methods of protectionism
tariffs - tax on imports
quotas - limit on imports
export subsidies - make exports cheaper to sell more
exchange rate manipulation - weakening the currency to make exports cheaper and imports more expensive
administrative/regulatory policies - insisting that imports must be of a certain standard, to restrict the number of them that can enter the country
