Trade

Question 1

define economic growth

Answer 1

• increases in total real output produced by an economy (real GDP) over time

Question 2

define economic development

Answer 2

• broad rises in standards
  of living and well-being of a population
• increasing income levels, provision of and access to basic goods and services
• and reducing poverty, income
  inequalities and unemployment

Question 3

The World Trade Organisation Objectives (WTO)

Answer 3

• organises free trade between countries (increasing trade efficiency)
• achieve trade liberalisation (removing trade restrictions / protectionism)
• regulates trading rules and standards to be non-discriminatory for countries
• making trade fairer for developing countries (promoting fair competition)
• settles trade disputes

Question 4

trade liberalisation definition

Answer 4

increasing trade efficiency and removing trade restrictions

Question 5

absolute advantage

Answer 5

• when a country can produce a greater quantity of a good with fewer resources / FoP (going into production for the good)
• relative to another nation
• which has cost w/ FoP being a cost

(w/o data of FoP then just the whichever country can produce a greater quantity of a good)

Question 6

comparative advantage

Answer 6

• country specialise in producing a good with the lowest opportunity cost in comparison to producing another good
• then trade w/ other countries w/ diff. opportunity costs hence producing diff. goods w/ diff. specialisations

Question 7

calculating opportunity cost (opp.) of good x for comparative advantage

Answer 7

opp. of good x =
(quantity of good y) / (quantity of good x)

(lower opp. means that country should produce that good)

Question 8

which is lower opportunity cost (opp.) for comparative advantage from trading PPC diagram (flat line)

Answer 8

flatter gradient from x-axis perspective is lower opp. for good x

flatter gradient from y-axis perspective is lower opp. for good y

one country CANNOT have comparative advantage for both goods [unless parallel meaning do advantage meaning no trade]

Question 9

tariff revenue

Answer 9

quantity imported x tariff (tax)

Question 10

identifying DWL from tariff

Answer 10

• identify the surplus areas from before tariff (CS & PS)
• identify if these surplus areas have been recaptured by PS or gov. rev.
• surplus after tariff - surplus before tariff = DWL

Question 11

2 DWL from tariff

Answer 11

• CS lost
• world efficiency lost , allocative inefficiency

Question 12

arguments for trade protection

Answer 12

fairness (competitiveness) SR prot.
- anti-dumping
- reducing imports from lower labour costs for manufacturing jobs in developing nations
- reducing imports from countries with export subsidies

wellbeing LR prot.
- protecting domestic employment
- health, enviro, safety standards
- gov. rev.

improving comparative advantage position SR prot.
- infant industries
- overspecialisation

Question 13

how do trade restrictions cause allocative inefficiency of resources

Answer 13

• relatively inefficient firms (domestic) remain in operation instead of lower opp. world firms
• inefficient with higher CoP, because more resources are used domestically to produce than would’ve been used if imported
• wasting resources unnecessarily as they could’ve been used for another good

Question 14

how do trade restrictions cause consumer welfare loss

Answer 14

• increases prices for consumers
• hence decreasing consumption of consumers
• decreases choice for consumers
• decreases competition and innovation