International trade Flashcards
What is it when a country’s absolute advantage?
absolute advantage: When a country produces more units of a good compared to another country per unit input
Comparative advantage:
A brief overview of the theory of comparative advantage
That even when countries are at an absolute disadvantage, all countries can still benefit from trade if they specialise in the good with the lowest opportunity cost
Why may a country have absolute advantage?
Factor endowments- resources they already have
Level of technology
Assumptions of the theory of comparative advantage
Only 2 countries Only 2 goods produced Full employment of resources Perfect information Perfect movement of resources
What is protectionism
When a country restricts free trade: a set of policies the government imposes to restrict the number of imports
Examples: tariff, quota, administrative barriers
What is a tariff
a tax levied per unit on the price of imported goods and services.
What is a quota
A physical limit on quantity imported. The extent to which the foreign firms benefit depend on the elasticities
What are administrative barriers
Protecting by making it harder for imports to be accepted: Making a set of conditions that have to be followed, rules, regulations.
Subsidies in protectionism?
Subsidising domestic firms allow them to produce more, so price isn’t altered for consumers.`
Advantages of protectionism
Protect domestic jobs
National security
Protection of key industries/infant industries
maintenance of healthPrevent dumping and unfair competition
Disadvantages of protectionism
Misallocation of resources Danger of retaliation and trade war Corruption Lack of competition Reduced export competitiveness
What is the role of the World Trade organisation?
Acting as a forum for trade negotiations
Handling trade disputes
Monitoring national trade policies
Providing aid to developing countries
