Net Trade - AD Flashcards
What is net trade?
Net trade is the total exports minus the total imports
How does real income affect net trade balance?
When real incomes in the UK is high, imports increase as people demand more goods and services. Therefore, net trade decreases.
Real income rise because of export-led growth increases net trade
When do a rise in real incomes lead to an increase in net trade?
Real income rise because of export-led growth increases net trade
How do exchange rates affect net trade balance?
A strong pound makes imports cheap and exports expensive as it costs more. Imports increase, exports decreases so net trade decreases
What is price elasticity?
Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price
How does price elasticity affect net trade balance?
If imports are inelastic, there is a rise in value, but if they are elastic, there is a fall in value
This is the same as exports
How does the state of the world economy affect net trade balance?
If the UK’s main export countries are doing well, then UK exports are likely to rise, increasing net trade. The effect of the state of the world economy is dependent on which countries are doing well and trade relations
What is protectionism?
Protectionism is an attempt to prevent domestic producers from suffering because of competition abroad. Tariffs, quotas and technical barriers are introduced, which makes it harder for producers from abroad to sell to the UK
How does protectionism affect net trade balance?
If there is high protectionism on the UK, exports will decrease. If the UK imposes protectionist measures, exports are likely to decrease as countries retaliate
What non-price factors affect net trade balance?
Quality, Design, Marketing
How does quality, design, and marketing affect net trade balance?
If the quality, design, and marketing of UK goods are high, exports will be high and imports will decrease. This is an increase in net trade
How do prices affect net trade balance?
If prices of UK goods are high, goods are less competitive compared to international goods, so exports decrease and imports increase. Net trade balance falls
What factors impact price of UK goods?
Inflation and Productivity
