Specialisation and Trade Flashcards
1
Q
International Trade definition
A
- Trading between countries of goods and services
2
Q
Free trade definiton
A
- Exists when there are no restrictions on the flow of goods and services between countries
3
Q
1) Benefits of trade
A
- Specialisation-theory of comparative advantage shows that world output can be increased if countries specialise in what they are relatively best at producing.E.g cheaper for barbados to grow bannanas than UK.
- Economies of scale-Trade allows economies of scale to be maximised therefore costs are reduced. Economies of scale are a source of comparative advantage.
4
Q
2) Benefits of trade
A
- Choice-allows consumers the coice of what to buy from the whole world, and not just from what is produced domestically. Consumer welfare is thus increased because some consumers at least will prefer to buy foreign goods rather than domestic goods.
- Innovation-Free trade implies competition. A lack of free trade often leads to domestic markets being dominated by a few firms who avoid competition amongst themselfs. Competition provides a powerful incentive to innovate.
5
Q
1) The costs of trade
O,J
A
- Overdependance-Countries can become dependant on foreign trade with small countries imparticular can become dependant on exports of only one or two commodities. If demand falls for these then theres a large risk on GDP.
- Jobs-Changes in demand can lead to unemployment. E.g parts of UK suffered structural unemployment during the second half of the 20th century as primary and manufacturing industries shrank in size due to competition from imports
6
Q
2) Costs of trade
D,E
A
- Distribution of income-trade can lead to a less equal distrubution of income. The benefits of trade may go mainly to rich elites within a country so may lead to the poor worse off. Widening inequality within a trading country.
- The environment-Trade can lead to environmental degregation and unsustainable development. Demand for timber, for example has led to large-scale deforestation in the developing world
7
Q
3)The costs of trade
S,C
A
- Loss of sovereignty-This means that they lose the ability to make desicions about matters which affect them. The loss of soverignity may be explicit because a government signs an international treaty.E.g the UK gained sovereignity by joining the EU
- Loss of culture-Trade brings foreign ideas and products to an individual country. Some argue that this leads to a loss of rich traditional native culture.
8
Q
Comparative advantage definition
A
- Exists when a country is able to produce a good more cheaply in absolute terms than another country
-David Ricardo realised that it could be mutually beneficial for both countries to specialise and trade
9
Q
Absolute advantage definition
A
- exists when a country is able to produce a good more cheaply in absolute terms than another country.
-economists in the 18th and 19th century developed ideas as to why differences in costs led to international trade
10
Q
1) Assumptions of comparative advantage
E,T
A
- No transport costs even though they can reduce/eliminate any comparative cost advantages. Usually, the igher proportion of transport costs in the final price, the less likely it will be traded.
- Costs are constant are there are no economies of scale. This assumption akes exmaples easy to find.However, the existance of economies of scale will tend to reinforce the benefits of international trade
11
Q
2)Assumptions of comparative advantage
2,H
A
- There are only two economies producing two goods. As in reality, theory of comparative advantage applies equally to a world with many economies producing a large number of traded goods.
- Theory assumes that trades goods are homogenous. Commodities like steel, copper or wheat are bought on price. However, a Toyota car is much different from a Ford car amd therefore its much more difficult to conclude that the Japanese cars have a comparative advantage over American cars
12
Q
3)Assumptions of comparative advantage
A
- Factors of production are assumed to be perfectly mobile as i9f they were not it might lead to a lowering of living standards. E.g if the UK produced steel but lost its comparative advantage to Korea. UK steels plants would close down. Leading to the economy being at less than full employment
- There are no tariffs or barriers.
- There is perfect knowledge so that all buyers and sellers know where the cheapest goods can be found internationally
13
Q
Patterns of trade
A
- There are many factors affecting influence the pattern of trade between countries today and the change in this pattern of trade over time
14
Q
Factors affecting patterns of trade-Comparative advantage
A
- Differences in costs of production between countries affect patterns of trade.
15
Q
Factors affecting patterns of trade-Impact of emerging economies
A
- As countries rarely grow they are usually expected to grow except countries like Syria which have shrinking economies.Countries that have expanding economies are expected to import and export more goods.
-over the past 50 years, China has gone from barely trading to on eof the exporting learders in the world
-therefore, emerging economies ,typically from MIC’s, disrupt existing trade patterns
