International trade

Question 1

Define balance of trade.

Answer 1

Balance of trade is the difference between physical exports and physical imports in 1 year.

Question 2

Define the LOAA.

Answer 2

The law of absolute advantage states that a country will specialise in the production of a commodity in which it enjoys absolute advantage.

Question 3

Define LOCA.

Answer 3

The law of comparative advantage states that a country should specialise in the production of those goods and services which it is relatively most efficient at producing and trade for the remainder of its requirements.

Question 4

Define trading bloc.

Answer 4

Trading blocs are groups of countries that have joined together and formed a free trading area.

Question 5

Define protectionism.

Answer 5

Protectionism means the government protects indigenous firms from international competition by erecting barriers to fair competitive trade.

Question 6

Define terms of trade.

Answer 6

Terms of trade is the ratio between the average price of exports and the average price of imports.