Term 4 Flashcards
Free trade
Refers to the absence of government intervenetion of any kind in international trade, so that trade takes place without any restrictions between individuals, firms or governments of different countries
Gain from trade
International trade results in a number of important benefits or gains from trade. These include:
-Increased competition
-Greater efficiency in production
-Lower prices for consumers
-Greater choice for consumers
-Acquiring needed resources
-Source of foreign exchange
-Access to larger markets
-Economics of scale in production
-Increases in domestic production and consumption as a result of specialisation
-Trade makes countries interdependent, reducing the possibility of hostilities and violence
-Trade as an ‘engine for growth’
-More efficient allocation of resources
-Trade makes possible the flow of new ideas and technology
Specialisation
Specialisation occurs when an individual, firm or country concentrates production on one or few goods and services. It can refer to the specialisation by a country in production of goods or services it can produce efficiently. A country that does not trade must itself produce all the goods and services consumed, and therefore cannot specialise. But f it uses its reosurces to specialise in the production of those goods and services it canproduce more efficiently, it can produce more of these, and trade some of them for other goods produced more efficiently in other countries. This way it is able to producre a greater quantity of output because it does not ‘waste’ its scarce reources on producing goods and services at a relatively high cost. It can also increase its consumption of goods and services, because by exporting part of its larger domestic output in exchange for other output produced more cheaply elsewhere, it can acquire a larger overall quantity of goods and services.
Absolute advantage
The ability of one country to produce a good using fewer resources than another country, using the same input of factors of production
AKA - A country hs an absolute advantage in a good if with the same quantity of resources it can produce more of the good than another country
Comparative advantage
Refers to the situation where one country has a lower opportunity cost (relative cost) in the production of a good than another country
CONCEPT: Theory of absolute advantage
If countries specialise in and export the good in which they have an absolute advantage the result is increased production and consumption in each country
CONCEPT: THeory/law of comparative advantage
According to this law, as long as opportunity costs in two or more countries differ, it is possible for all countries to gain from specialisation and trade according to their comparative advantage. The global allocation of resources improves, resulting in greater global output and greater global consumption, allowing countries to consume outside their PPC.
Trade liberalisation
Involves the freeing up of trade through the gradual removal of trade restrictions
Trade protection
Involves government intervention in international trade through the imposition of trade restrictions/barriers to prevent the free entry of imports into a country.
This is done to ‘protect the domestic economy’, particularly domestic firms and their workers from foreign compeition.
Tariffs AKA ‘customs duties’
Taxes on imported goods and are the most common form of trade restriction.
They serve two purposes- a protective tariff and a revenue tariff. Shatever he purpose, the effects of the economy are the same.
Protective tariff
A tarif to protect a domestic industry from foreign competition
Revenue tariff
To raise revenue for the government
Import quota AKA quota
A legal limit to the quantity of a good that can be imported over a particular time period (usually a year). The effects of quotas are similar to the effects of tariffs, except that the usually do not create revenue for the government.
Export subsidies
Similar to production subsidies in that they involve a payment by the government per unit of the subsidies good, except that no the subsidy is paid for each unit of a good that is exported.
Production subsidy
A production subsidy is a financial incentive provided by the government to businesses or industries to lower their production costs, thereby encouraging increased output, enhancing competitiveness, and potentially stabilizing prices in the market.
Infant industry
A new domestic industry that has not had time to establish itself and achieve efficiencies in production, and may therefore be unable to compete with more ‘mature’ competitor firms from abroad.
Diversification
Change involving greater variety, economic diversification refers to increasing the variety of goods and services produced, it is the opposite of specialisation
Economically least developed countries (ELDCs)
Among the poorest countries in the world, are highly specialised in producing and exporting only a few primary commodities
Dumping 💩
Refers to the practise of selling a good in international markets at a price that is below the cost of producing it. Dumping is considered to be an unfair trade practise and is illegal according to international agreements.
Anti-dumping argument 🚫🙅♀️💩
If a country suspects that a trading partner is practisng dumping , it should have the right to impose tariffs or quotas in order to limit imports of the subsidised- this is the anti-dumping argumentin favour of trade protection
Unfair competition
Refers to practises that countries may use in order to gain a competiive advantage over other countries in order to unfairly increase their exports at the expense of other countries.
Examples include:
-Dumping 💩
-More general use of production and export subsidies whereby exporting firms artificially achieve lower costs of production thus increasing their exports 🤑
-Administrative barriers/ ‘hidden protection’ whereby countries limit their imports using questionable means 🤔
-undervalued currencies whereby countries seek a lower value for their currency in order to make their exports more compeititve in foreign markets 🤲
-violation of intellectual property whereby firms or indviduals within countries illegally obtain ideas, trade secrets or any intellectual works 🗣️🙋♀️🙋♀️🙋♀️🤦♀️
Autarky
An economic system of self-sufficiency and limited trade
