trade Flashcards

1
Q

what is comparative advantage

A

when a country can produce a good or service at a lower opportunity cost than another country - means they have to give up producing less of another good than another country - using the same resources

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2
Q

what is absolute advantage

A

a country’s absolute advantage in the production of a G/S if it can produce it using fewer resources and at a lower cost than another country

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3
Q

what is free trade

A

the act of trading between nations without protectionist barriers

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4
Q

benefits of free trade (4)

A

more exports could lead to higher rates of economic growth

specialising means countries can exploit economies of scale - lower their average cost

free trade increases economic efficiency - establishes a competitive market - lower cost of production - increased output

countries can exploit their comparative advantage - leads to a higher output using fewer resources - increasing world GDP - improves living standards

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5
Q

costs of free trade (2)

A

free trade has resulted in some job losses - since countries with lower labour costs have entered the market

free trade might have contributed to some environmental damage - especially form increased manufacturing and shipping

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6
Q

how has comparative advantage changed patterns of trade between the UK and rest of the world

A

has been recent growth in the exports of manufactured goods from developing countries to developed countries - because developing countries have gained an advantage in the production of manufactured goods - due to their lower labour costs - so production shifts abroad

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7
Q

how has deindustrilization affected UK trade

A

it has meant that ,manufacturing sector has declined - means that production of manufactured goods has shifted to there countries - such as china - while the UK focuses more on services - finance

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8
Q

how much does international trade contribute to LEDC economies

A

20%

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9
Q

how have trading blocs changed patterns of trade

A

trade has been created between members but diverted from elsewhere - occurs when trade shifts to a less efficient producer - country may switch from a cheap external producer to a more expensive one within the trading bloc

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10
Q

how have policies of developed countries effected trade patterns

A

they limit the ability of developing countries to export primary commodities - e.g. CAP means domestic farmers receive subsidies to encourage production and lower costs - increases the income of domestic farmers and protects the industry - hard for farmers in other countries to compete - therefore not able to access the market in developed countries - limits participation in trade

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11
Q

what is protectionism

A

the act of guarding a country’s industries from foreign competition using methods such as tariffs

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12
Q

what are tariffs

A

tariffs are taxes on imports to a country

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13
Q

costs of tariffs

A

may lead to retaliation between countries - therefore decreasing number of exports - as other countries may want to do the same back

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14
Q

what is the impact of tariffs

A

is that the quantity demanded of domestic goods increases - while the quantity demanded of imports decreases

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15
Q

what does a quota do

A

a quota limits the quantity of a foreign produced good that is sold in the domestic market - it sets a physical limit on a specific good imported in a set amount of time - leads to a rise in the price of the good for domestic consumers - greater cost to consumers

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16
Q

what are export subsidies

A

form of gov intervention to encourage goods to be exported rather than sold on the domestic market - gov may use direct payments, cheap access to credit

17
Q

what are embargoes

A

this is the complete ban on trade with a particular country - usually political motivation

18
Q

what is red tape

A

excessive administration increases the cost of trading - discourages imports - makes it difficult to trade with countries imposing red tape - particularly harmful for developing countries which are unable to access these markets

its hard tpo notice - this y its used

19
Q

how do protectionist measures reduce trade deficits

A

because countries will be importing less due to tariffs and quotas on imports

exports may be greater than imports

20
Q

how does protectionism help small businesses

A

protectionism is usually short term means domestic producers can trade freely without external competition

21
Q

how can protectionism distort the market

A

it can lead to a loss of allocative efficiency - as it prevents industries from competing in a competitive market and there is a loss of consumer welfare

consumers face higher prices and less variety - by not competing in a competitive market firms have less incentive to lower their costs of production

22
Q

how do tariffs increase inequality

A

they are regressive - and are therefore most damaging to people on low incomes - as they have to pay more of their disposable income