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Macro economics > Trade > Flashcards

Trade Flashcards

1
Q

absolute advantage

A

when a country can make a product using less factors of production than another country

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2
Q

comparative advantage

A

is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners

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3
Q

assumptions in comparative advantage

A
  1. all product are homogenous
  2. there are no trade barriers
  3. perfect knowledge and all consumers know where to buy the cheapest product
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4
Q

dynamic gains from trade

A
  1. Economies of scale
  2. increased competitive pressure
  3. increased innovation may result in more choice
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5
Q

draw a tariff graph

A

nice

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6
Q

what point will trade be mutually beneficial

A

where the rate of exchange lies between the opportunity cost ratios between the two countries

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7
Q

dynamic gains from trade

A
  1. Economies of scale
  2. increased competitive pressure
  3. increased innovation may result in more choice
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8
Q

what determines whether a country has comparative advantage

A

quality and quantity of factors of production

EG ghana may be able to better produce cotton because the soil is more fertile
Eg India may have a more educated workforce and can make computers more efficiently

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9
Q

reasons to protect an industry

A
  1. infant industry
  2. to protect against dumping
  3. to avoid over specialisation
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10
Q

why do infant industries need protection

A

as they are developing the firms within may not be able to benefit from economies of scale and may not be able to compete with international firms as a result

it may also help diversify the economy making it less reliant on industries such as oil and oil prices

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11
Q

evaluation of protectionism

A

protectionist measures must be implemented in the short term otherwise inefficiencies will develop as domestic firms lack competition and consumer surplus will decline as prices may rise and variety may decline.

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12
Q

what is dumping

A

when a country imports a high quantity of goods at a prove which is below cost.
this means domestic firms can’t compete and may be priced out of the industry as a result

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13
Q

why may over reliance occur

A

If a country fails to protect its vital industries such as food or energy

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14
Q

why may tariff occur

A

Brexit leaving the trade bloc means the UK will no longer benefit from free trade

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15
Q

Why is protectionism bad?

/ Why is free trade good?

A

The implementation of tariffs makes goods such as Dutch medication much more expensive

Meaning those who need medicine are less able to finance other necessities resulting in food poverty

Resulting in the loss in welfare shown in sections 2 and 4 in the tariff diagram

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16
Q

Evaluation of why free trade is important

A
  1. it is particularly important for free trade as the government want corona virus vaccines for cheaper so more people can access them and the UK can benefit from herd immunity
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17
Q

examples of infant industries need protection

A

the UAE are massively reliant on oil. Increase in oil prices would result in massive inflation and the economy would be unstable as a result.

technology industries were protected so the economy was more diverse and less reliant on oil as a result

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18
Q

An example of a country who is over reliant on another

A

80% of Ukrainian gas comes from Russia giving Russia a massive political advantage.

If Russia were to have a strike urkain may be unable to power their homes

19
Q

how to work out opportunity cost ratios

A

calculate how much it costs for product A in terms of product B

So if Country A could make 8 basket balls and only 6 shoes.

the opportunity cost of making one basket ball would be 6/8

20
Q

opportunity cost ratios to remember

cost to make 1

A 
Cars                         Trucks              
Germany         20 (0.75 trucks)      5 (1.3 cars)

UK 10 (0.5 Trucks) 15 (2 cars)

21
Q

Arguments for free trade not aid

A
  1. Developing countries can access products at a lower cost without having to repay the debt of aid
  2. Foreign aid can displace local incentives to develop public services such as healthcare
22
Q

Arguments for aid

A
  1. Just as some south East Asian countries have benefited from free trade it doesn’t mean that landlocked countries such in sub Saharan Africa will. High transport costs
  2. Benefits of free trade are not always equally distributed
23
Q

What is free trade

A

An agreement between countries where there is no added costs to trade

24
Q

What is aid

A

Money transferred to another country (usually following a disaster) in the form of a gift or a loan

25
Q

Economic development

A

it means an improvement quality of life through measures such as life expectancy, literacy rates and healthcare.

26
Q

how dependant are the US and Mexican economies on each other

A

40% of of the parts of a typical Mexican export comes from the US

A tariff would harm the US as they will export less.
A tariff would make Mexican products more expensive in both markets

27
Q

Alternatives to trade protectionism

A

subsidies to provide capital to some industries may better allow domestic firms to compete globally as they can benefit from lower costs of production

28
Q

Mercantilism

A

when a government seeks to promote domestic industries.

29
Q

what percentage of land in France is used for Agriculture

A

55%

30
Q

what percentage of land in UK is used for Agriculture

A

36%

31
Q

what percentage of uk medicine is imported from the EU

A

90%

32
Q

how can corruption impact development

A
  1. if the tax revenue earned it not reinvested back into the country through education
  2. bigger class sizes
  3. less one to one teaching
  4. worse grades and literacy rates
  5. resulting in less employability in the future
  6. less income/ less food
  7. less economic development
33
Q

how can levels of savings impact development

A

without secure banking systems consumers are unable to build up their wealth
without wealth to invest there may not be any growth

The Harod domar model says that savings are vital for growth

34
Q

how can tax levels impact development

A

with less tax more businesses may be encouraged to set up in the country
this may provide more employment opportunities in the local economy
giving people increased income

35
Q

what is a customs union

A

a trading bloc where members benefit from free trade but are protected by a common external tariff barrier

36
Q

advantages of a custom union

A
  1. can get imported goods from the EU for cheaper
    such as medicine

(90% of medicine in the UK Is imported from the EU

37
Q

disadvantages of a custom union

A
  1. can’t give preferential tariffs to declining or infant industries.

for example the UK may be unable to compete in the EU industry

38
Q

what is capital flight

A

occurs when assets of money rapidly leave a country.

39
Q

why may capital flight occur

A
  1. increased interest rates
  2. rising income and corporation tax
  3. risk of governments becoming unable to repay debts
40
Q

impact of capital flight

as a result of an increase in interest rates in the UK

A
  1. savers who are not inert may be encouraged to save with a US bank such a JP Morgan as they may be able to get a better return on their savings
  2. in doing so they have to buy dollars as pounds have little value in the US and sell their poundds
  3. this results in an increase in supply and a depreciation of the exchange rate
  4. this may make imports more expensive and cost push inflation may be caused
41
Q

Marshall learner condition

A

The sum of the price elasticities for demand of exports and imports is greater than 1

42
Q

Why may the learner condition not hold

A

International contracts
In perfect information

Germany doesn’t hold due to their reputation and quality of engineering. Also, they import high quantities of raw materials for manufacturing

43
Q

Limitations of comparative advantage

A

Transport costs may outweigh
Increased specialisation lead to diseconomies of scale
Governments restricting trade
Doesn’t measure dynamic advantage

Macro economics (10 decks)

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