Trade

Question 1

What’s absolute advantage?

Answer 1

Absolute advantage means that an economy can produce a greater total of goods for the same quantity of inputs.

Question 2

What’s comparative advantage?

Answer 2

When one country can produce a good or service at a lower opportunity cost than another.

Question 3

Name 2 pros of free trade

Answer 3

• Increased competition
• Increased production
• Cheaper products for customers

Question 4

Name 2 reasons for restricting free trade

Answer 4

• Protect local markets
• Prevent foreign-based monopoly
• Protect declining industries

Question 5

What’s the balance of payments made of?

Answer 5

The Balance of Payments shows a countries transactions with the rest of the world. It notes inflows and outflows of money and categorises them into different sections.

Question 6

How can the equilibruim of the BoP be restored?

Answer 6

Do nothing:

mports exceed exports, BoP deficit exists
Excess supply of sterling over demand will lead to a weakening of sterling against over currencies
Makes imports to UK more expensive and exports cheaper
Therefore, exports should start to rise and imports fall
The Deficit is gradually removed