Trade

Question 1

Globalisation

Answer 1

increasing integration between the countries of the world

Question 2

Characteristics of globalisation

Answer 2

• greater trade between countries
• higher levels of labour labour migration between countries
• increase capital transfers between countries through FDI and portfolio investment

Question 3

Free trade

Answer 3

The importing and exporting of goods and services, unrestricted by protectionist measures, such as tariffs and quoatas

Question 4

Absolute advantage

Answer 4

Occurs when a country can produce more of a product using the same factors of production

Question 5

Comparative advantage

Answer 5

when a country produces a good in which they have a lower opportunity cost of production i.e give up fewest units of the other good

Question 6

Comparative advantage

Answer 6

when a country produces a good in which they have a lower opportunity cost of production i.e give up fewest units of the other good

Question 7

Limitations of comparative advantage

Answer 7

• factors of production may not be perfectly mobile
• ignores transport costs
• ignores import/export restriction

Question 8

Benefits of free trade (developed countries)

Answer 8

• productive efficiency (more comp)
• Allocative efficiency (more choice)
• Dynamic efficinecy (more innovation)

Question 9

Benefits of free trade (developing countries(

Answer 9

• inflows of new knowledge
• rising living standards
• reduction in absolute poverty

Question 10

Drawbacks of free trade (developed countries)

Answer 10

• government cannot raise money through tariffs
• excessive imports current account deficit
• loss of AD

Question 11

Drawbacks of free trade (developing countries)

Answer 11

Lack of diversification (mostly production of primary products)
- environmental damage

Question 12

protectionism

Answer 12

implementing policies to protect an economy through restrictions on imports

Question 13

Reasons for Protectionism: Infant Industry argument

Answer 13

• Infant industry argument = protecting a young industry which may not be able to survive foreign competition, especially in the face of large start up costs

Question 14

Reasons for protectionism: job protection

Answer 14

• job protection = stop imports from taking domestic customers and therefore are more profits for domestic businesses who can maintain employment levels

Question 15

Reasons for protectionism: BoP

Answer 15

reduce imports into a country correct current account

Question 16

Reasons against Protectionism: infant industry

Answer 16

will the government pick good industry to support

concerns whether a lack of competitive pressure will allow the infant industry to become efficient

Question 17

Reasons against protectionism: job protection

Answer 17

consumers will have less choice and higher prices

Question 18

Reasons against protectionism:BoP

Answer 18

other policies to improve BOP eg demand reduction, supply side and exchange rates

Question 19

Methods of protection

Answer 19

tarrif
import quota
export subisidies

Question 20

Effects of the Tariff

Answer 20

• domestic supply increased
• domestic price increased
• domestic demand decreased
• imports and import revenue decreased
• gov gain tax revenue

Question 21

Economics effects of quotas

Answer 21

• domestic supply increased
• domestic price increased
• domestic demand decreased
• imports and import revenue decreased

Question 22

What is the impact of a tariff if PED is inelastic

Answer 22

if PED/PES is inelastic then tariff wont help domestic firms that much because they may not have spare capacity

Question 23

Arguments for being outside the EU

Answer 23

1) trade diversion - UK can buy goods from the cheapest supplier tariff free, inside the EU may not be cheapest because of common external tariff
2) businesses will no longer have to comply with EU regulations
3) wages may rise due to reduced labour supply (no free movement of labour)

Question 24

Arguments for EU membership

Answer 24

1) Access to larger supply of labour, potentially cheaper, well qualified workers from across the EU
2) trade creation - benefits of being able to buy tariff free = expansion of demand and improvement in overall welfare for consumers
3) potential economies of scale from selling to larger population