Patterns of Trade Flashcards
How is a $174 million increase in exports of cotton likely to effect the Beninese economy?
If Beninese corporations are selling more exports then they will be making more profit and therefore paying more corporation tax.
How might comparative advantage affect the pattern of trade?
If a country has a comparative advantage in the production of a good then they are able to produce it at a lower opportunity cost. This means that they should produce and export more of the good.
Which of the following shows a likely impact of the removal of tariffs between EU members?
Trade creation
Removal of tariffs will decrease prices, which will increase imports from other EU members. This is trade creation. The diagram below shows trade creation as there is an increase in the quantity of imports.
Which of the following shows an impact of the removal of trade barriers between countries which are part of the European Union?
Trade diversion because common external tariffs make goods from non-member countries more expensive
How can trading blocs influence the pattern of trade?
Trade diversion and trade creation
How does an appreciation of the dollar affect the competitiveness of American goods and services?
An appreciation means that exports are more expensive for foreign consumers (SPICEE), so US exports will be less competitive.
How does a depreciation of the rupee affect the competitiveness of Indian goods and services?
A depreciation means that exports are cheaper for foreign consumers (opposite of SPICEE) and so Indian exports will be more competitive.
Four Factors That Influence Patterns of Trade
The four factors that influence the pattern of trade are; comparative advantage, emerging economies, trading blocs, exchange rates.
Impact of Comparative Advantage on Pattern of Trade
If a country has a comparative advantage in a good, they will export more of it.
Impact of Emerging Economies on Pattern of Trade
There has been an increase in exports and imports from the emerging economies; Brazil, Russia, India, China and South Africa.
Impact of Trading Blocs on Pattern of Trade
Trading blocs can lead to trade creation and trade diversion.
Impact of Exchange Rates on Pattern of Trade
An exchange rate appreciation will lead to an increase in imports and a decrease in exports.
How does comparative advantage affect the pattern of trade?
The law of comparative advantage states that there will be an increase in global output if countries produce according to their comparative advantage. If a country can produce a good at a lower opportunity cost than another country then it has a comparative advantage in the production of that good. This country should then export more of that good.
Which of the following is most likely to cause a increase in demand for imports to emerging economies such as Brazil?
As incomes rise in emerging economies (BRICS), they will want to import more goods from around the world - particularly luxury goods from developed countries. So, an increase in incomes in emerging economies will increase Brazil’s demand for imports.
