Trade

Question 1

Benefits of international free trade

Answer 1

Exploit comparative advantage- economies of scale

Economies growth export potential, AD
Increase GDP, living standards

Able to consume more lower prices
increase economic welfare - consumer surplus

Increased allocative efficiency on world scale

Greater choice

More competition from global market

Question 2

Disadvantages of free trade

Answer 2

Diseconomies of scale

Overdependancy, eg Germany on Russian gas

Domestic producers lose out reduced revenues profits surplus

Unemployment

Over specialisation too reliant on performance of certain industries link to structural unemployment

Question 3

Comparative advantage

Answer 3

Least opportunity cost of producing a good

Question 4

Define protectionism

Answer 4

Act of guarding a countries industries from foreign competition

Question 5

Benefits of protectionism

Answer 5

Protect jobs, incomes, living standards
Sun set industries, allow for slow controlled decline, occupational mobility
Infant industries- allow them to develop competitive advantage may fail before can reach a scale at which can compete
Reduce imports- improve balance of trade on CA
Increased domestic producer surplus, revenue and profits

Question 6

Cons of protectionism

Answer 6

Reduced consumer surplus, pay higher price, trade diversion, lower quantity consumed

Imposition of protectionism back

Decreased global efficiency, miss allocation of rescue