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Economics Theme 4 > Trade > Flashcards

Trade Flashcards

1
Q

Advantages to International Trade

A
  • Larger variety of goods
  • Increased competition leads to innovation and lower prices
  • Access to additional markets, economies of scale
  • Spread of new skills ideas and technology
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2
Q

disadvantages of International Trade

A
  • High transport costs
  • Currency exchanges can be detrimental
  • non monetary costs like translating or foreign market research
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3
Q

advantages of Specialisation

A
  • costs are reduced so lower prices
  • resources are allocated more efficiently
  • global output is increased and living standards raised
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4
Q

disadvantages of Specialisation

A
  • Some domestic industries will be forced to shut down resulting in job loss
  • makes countries more vulnerable to supply shortages and very unflexible
  • over reliance on a single industry so susceptible to shocks
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5
Q

When does a country have an absolute advantage

A

when its output of a product is greatest per unit than any other country

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6
Q

What does specialising in a product with an absolute advantage do

A

doubles output in that product

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7
Q

what is a comparative advantage

A

When a country has a lower opportunity cost of producing a good than other countries

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8
Q

Why is the comparative advantage law hard to apply in the real world

A

Assumes there are no economies or diseconomies of scale, transport costs or barriers to trade, perfect knowledge, and ignores externalities

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9
Q

How to work out the comparative advantage of good A

A

Good B / Good A

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10
Q

Why won’t countries specialise 100%

A

Total output will decrease

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11
Q

What is the alternative to 100% specialisation

A

partial specialisation which sets terms of trade where both countries combined production of goods is greater than before specialisation

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12
Q

What is terms of trade

A

relative price of exports compared to imports

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13
Q

How to calculate terms of trade index number

A

index of average price of exports / index of average price of imports
X100

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14
Q

What graph can be used to show comparative advantage

A

PPF

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15
Q

What is they y and x axis for comparative advantage PPF and how do you then plot the curve

A

Y axis is the ouput of good A and x axis output of good B, to plot the curve you join the two points on both axises that the country would produce at if they specialised in either good.

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16
Q

What does partial specialisation do to the PPF

A

Can help countries to produce beyond the PPF

17
Q

How does comparative advantages influence changes in the pattern of trade

A

Countries will export their comparative advantage products and import their disadvantages so this principle is the main driver of international trade patterns

18
Q

How do NEEs influence changes in the pattern of trade

A

These countries experiencing rapid industrialisation and growth have become large manufacturers and thus global exporters. China - Hi tech goods

19
Q

How does growth of trading blocs and bilateral agreements influence changes in the pattern of trade

A

Can create favourable trading circumstances in lower tariffs and reduced barriers which boosts trade within them.

20
Q

How changes in relative exchange rates influence changes in the pattern of trade

A

SPICED and WIDEC cause fluctuations in trade levels for countries

21
Q

factors effecting the terms of trade

A
  • exchange rate appreciation will improve the terms of trade was exports will rise In price
  • price of raw materials affects exports
  • Inflation would cause temporary improvements as exports price will rise
    –> long term would cause depreciation worsening terms of trade
22
Q

How does inflation cause a depreciation in the exchange rate

A

inflation means the price of domestic goods increases so there is less demand for domestic goods and less demand for domestic currency used to buy those goods. This causes a larger supply of domestic currency which decreases its price or it depreciates

23
Q

Impacts of changes in the terms of trade

A
  • improvement of TOT can worsen the BoP
  • increase in TOT may be positive for inflation as it shows falling import prices
  • worsening of TOT may increase international competitiveness and improve growth
24
Q

Reasons for restrictions on free trade

A
  • May be a risk of job losses if domestic firms are outcompeted by foreign
  • to protect infant industries
  • Ban goods with negative externalities
  • Anti-dumping measures
  • improve BoP
  • Environmental and health concerns, ensuring they meet standards
25
Q

Infant Industries

A

domestic Industries that are just starting out and can’t compete with foreign companies

26
Q

What is dumping

A

Foreign companies selling goods domestically at a price below production cost to force domestic producers out of business

27
Q

Tariffs

A

A tax put on imports domestically to make them more expensive

28
Q

Quotas

A

Can be fixed to limit amount of certain goods that can be imported

29
Q

Embargoes

A

Bans that can be put on certain products, only done for illegal items or political reasons

30
Q

Examples of non tariff policies that restrict free trade

A
  • depreciation of X rate
  • Strict standard regulations like high safety or low emissions requirements
  • Subsidising domestic producers to reduce costs of production and price
31
Q

Free trade

A

Trade with no restrictions or government involvement

32
Q

Why do trade disputes occur

A

When countries may perceive other countries protectionist policies as unfair and retaliate

33
Q

example of dumping

A

China selling very cheap toys

34
Q

negative impacts of protectionist policies or on producers

A
  • Reduces specialisation, which mean resources are allocated and produced less efficiently
  • Difficult to remove trade barriers as domestic firms may become reliant, zombie companies
  • Doesn’t allow firms to improve efficiency through competition
  • Can cause retaliation and trade wars between governments reducing world trade
35
Q

negative impacts of protectionist policies or on consumers

A
  • increases inequality as prices of necessities may rise impacting poorer people more
  • Higher prices for consumers due to lack of competition and imports expensive
  • less choice and variety

Economics Theme 4 (17 decks)

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