International Trade

Question 1

Reasons for international trade

Answer 1

1. Reduced deprency on your local market - going global gives immediate access to an unlimited range of customers with different wants
2. Increased chances of success - higher volume of products = more profits and overseas trade is an obvious way to increase sales
3. Increased efficiency - benfits from economics of scale
4. Increased productivity - companies involved in overseas trade can improve their productivity
5. Economic advantage - taking advantag of currency fluctuations
6. Innovation - exporting to a wider range of customers
7. Growth - more overseas trade = increased growth opportunities to benefit both business and out economy as a whole

Question 2

Advantages of international trade

Answer 2

1. Optimal use of natural resources
2. Availability of all types of good
3. Specialisation
4. Efficiency increased due to international competition
5. Price stability - international trade outwilds fluctuation in price equalising goods thought out world

Question 3

Disadvantages of international trade

Answer 3

1. Economic dependence - underdeveloped countries depend on developed ones
2. Political dependence - IN often encourages subjugation and slavery
3. Import of harmful goods
4. Storage of goods - sometimes raw materials needed
5. Danger to international peace - opportunity to foreign agents to settle down in the country which ultimately endangers its internal peace

Question 4

Absolute advantage

Answer 4

Ability of a country, individual, company to produce a g/s at a lower cost per unit than any competitor

Question 5

What is comparative advantage

Answer 5

Ability of an individual, company or country to produce a g/s at lower opportunity cost than its competitor then there will be an economic welfare

Question 6

Different methods of protectionism

Answer 6

1. Tariff - tax on imports and exports
2. Subsidies - ,only given by government to an economic sector in order to reduce or increase price of g/s
3. Quotas - limit on amount of g/a that can be imported/exported in a specific time period
4. Embargo -legal prohibition on commerce/importation

Question 7

Invisible and visible trade

Answer 7

Invisible - importation and exportation of services

Visible - “” tangible goods

Question 8

For trade barriers

Answer 8

1. National defence - foreign producers should not be relied upon for production of defence goods
2. Infant industries - involving new technology giving new firms chance to develop
3. Protect strategic industries - government seeks to their agricultural industries so they are not entirely dependent on supplies from overseas
4. Limit overspecialisation - trade barriers can help maintain wider range of different industries that would otherwise be threatened by overseas competitions, preventing over specialisation in goods which have a comparative advantage
5. Correct trade imbalance - country spending more on imports than it earns from exports

Question 9

Against trade barriers

Answer 9

1. Restrict consumers choice
2. Resticrt new revenue/employment opportunities - firms seeking new market
3. Increased production costs - because government imposes tariffs on raw materials
4. Reduced global economic growth
5. Other countries may retaliate - one country does the same - trade war