Lesson notes Friday 7/02/20

Question 1

What are 2 demand like policies to improve trade performance in the SR?

Answer 1

Expenditure reducing policies ( reducing spending on imports by reducing AD and Marginal propensity to import e.g contractionary monetary and fiscal policy)
Expenditure switiching policies ( Protectionism reducing import spending or domestic subsidies to help domestic firms. SWITCHING TO DOMESTIC GOODS)

Question 2

How can supply side policies improve trade?

Answer 2

Improve competitiveness of domestic goods and exports e.g. Deregulation and Governement spending on education ( to improve skills of the labour force)

Question 3

How can improving macroeconomic stability improve trade performance in the LR?

Answer 3

This makes a country more attractive to inward investment + raise productivity and increase a country’s capacity for exporting.

Question 4

What are 3 problems of a growing of Trade gaps ( deficit)

Answer 4

1) Loss of jobs in home based industries.
2) Can lead to currency weakness and higher inflation
3) Trade deficit a reflection of lack of competitiveness

Question 5

What does can lead to currency weakness and higher inflation mean?

Answer 5

Supply increases for our imports so there is a weak currency. Exports for overseas will be cheaper, so inflation will be higher in the other country

Question 6

What are 3 benefits of trade?

Answer 6

The theory of comparative advantage
EoS
Free trade provides greater choice for consumers and competition with helps keeps price down

Question 7

What is the theory of comparative advantage for benefit of free trade?

Answer 7

Specializing in goods, where a country has a lower opp cost , we can benefit from an increase in economic welfare. ( you could draw a demand diagram with a tarrif and not with a tarrif, which lowers price and increases CS)

Question 8

How is Economies of scale a benefit of trade?

Answer 8

If countries can specialise in certain goods they can benefit from EOS and lower average costs. This will lead to lower costs and firms may pass this on to Consumers. This may lead to increase in standards og living.

Question 9

What is evaluation Free trade provides greater choice for consumers and competition with helps keeps price down as a benefit of trade?

Answer 9

So much choice that you don’t make a consumer maximizing utility choice
Also depends on the extent of cartels ( due to free trade firms might collude an act as a monopoly to lower costs more)