Th2.2: Influences on Net Trade Balance

Question 1

What are the six influences on net trade balance?

Answer 1

real income
exchange rates
state of world economy
degree of protectionism
non-price factors
prices

Question 2

Real income

Answer 2

when real income in the UK is high, there tends to be increased imports as people demand more goods and services and the UK is unable to meet their needs

Question 3

Exchange Rates

Answer 3

a strong pound makes imports cheap and exports dear because it costs foreigners more to buy pounds with their local currency. as a result, imports will increase and exports decrease so net trade will decrease

Question 4

State of world economy

Answer 4

if the UK’s main export country is doing well, then UK exports are likely to rise and so net trade is likely to rise

Question 5

Degree of protectionism

Answer 5

if there is a high protectionism on imports into the UK, imports will decrease

Question 6

What is protectionism?

Answer 6

an attempt to prevent domestic producers suffering from competition abroad

Question 7

Non-price factors

Answer 7

if UK goods are of a higher quality and design, exports will be high as foreign demand for UK goods will increase and imports will decrease as people will buy the British goods instead of foreign goods

Question 8

What are two non-price factors which affect net trade?

Answer 8

quality and design and marketing

Question 9

Prices

Answer 9

high prices of UK goods mean that the goods are less competitive compared to international goods since people make decisions partly based on price - decreases volume of exports, increases volume of imports

Question 10

When will higher prices lead to a fall in net trade?

Answer 10

if PED is elastic