Specialisation And Trade

Question 1

What is international trade?

Answer 1

The exchange of products, not between countries, but between the economic agents of those countries such as businesses, consumers and state governments

Question 2

What is free trade?

Answer 2

This is international trade free from artificial barriers such as import tariffs, quotas and other trade barriers.

Question 3

Static gains

Answer 3

Improvements in allocative and produce efficiency in markets

Question 4

Dynamic gains

Answer 4

Gains in welfare

Question 5

What are the dynamic gains from free trade?

Answer 5

1) Trade makes counties better off by allowing them to specialise according to their comparative advantage, which provides access to new and cheaper imported goods and increasing competition
2) Dynamic gains from trade make a domestic economy more productive

Question 6

Some key gains from trade are:

Answer 6

1) Exploiting economies of scale - lower unit costs and prices
2) Increase market contestability reduces prices for customers
3) Better access to new technologies increases productivity