Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Economics > Trade > Flashcards

Trade Flashcards

1
Q

What is an absolute advantage

A

Where one country is able to produce a good or service at a Lowe cost(using less resources)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a comparative advantage

A

Where one country produces a good at a lower relative opportunity cost than others, expressed in terms of alternative goods foregone

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

When is there a basis for trade

A

If a country could make better use of its scarce resources by specialising
This can allow a country to produce outside its ppc

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the theory of comparative advantage

A

States that countries should specialise in producing the good that they can produce at a lower opportunity cost and then trade

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the sources of comparative advantage

A

Factor endowments-the mix of land, labour, capital that a country possesses
Factor intensities-the balance between land, labour,and capital required
Specialisation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Explain gains from trade

A

The theory of absolute and comparative advantage states that is it always mutually beneficial for countries to trade with one another and specialise even if one country has absolute advantage over all goods production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the assumptions associated with gains from trade

A

Perfect occupational mobility of factors of production
Constant returns to scale
Fails to account for transport costs, associated negative externalities as well as increased risk from specialisation and the lack of diversification

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is protectionism

A

Deter domestic consumers buying abroad
Encouraging foreign countries to buy exports by artificial gov intervention

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Why are tariffs used

A

Stop reliance on other countries and reduce trade deficit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a quota

A

Gov imposed trade that limits the the amount a country can import or export

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are export subsidies

A

Government payment to a business that encourages the exportation of goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are foreign exchange restrictions

A

Limitations on the purchase and sale of currencies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are trade embargoes

A

Gov imposed restriction on trade, financial transactions or other economic activity with another specific country

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is red tape

A

Unnecessary or overly complex regulations and administrative processes that can hinder economic growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are quality standards

A

Requirements and specifications that help organisations ensure consistent product quality

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are government purchasing policies

A

Rules that govern how governments buy goods and services
Eg prioritising domestic contracts for large scale purchases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are the disadvantages of protectionism

A

Welfare loss for consumers-high price
Reduced economic output and welfare
Higher costs of imports for components
Threat of retaliation
Admin costs of enforcing import controls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Arguments for protectionism

A

Response to import dumping
Response to trade deficits
Employment protection
Protect key/politically strategic industries
Raise TR
Response to a recession
Protect infant sectors
Security

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is import dumping

A

Import dumping happens when a country or company exports a product to another country at a price lower than its normal value, often below the cost of production or the price it sells for at home.
In order to undercut local producers and weaken competition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Eval of protectionism

A

Depends on PED of imports
Depends on PES of supply for domestic firms
How TR is used
Income inequality
Impact on inflation/living standard
Risks of retaliation
Exports recquire imports for raw materials

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q
A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is trade diversion

A

Moving trade from a lower cost producer to a higher cost producer through economic integration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is trade creation

A

Moving trade from a higher cost producer to a lower cost producer through economic integration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is a free trade area

A

Eg USMCA
Removal of tariffs and quotas on trade between member states
Member states reserve the right to determine their own trade policy between non members

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What is economic integration
Involves making agreements to liberalise trade between countries, it aims to promote growth and development in member states
26
What is the core periphery effect
When gains of integration occur predominantly in the stronger economies. Investment and innovation cluster in the core, attracting more resources. • The periphery may supply raw materials, cheap labor, or migrate talent to the core. • This can create regional inequalities and underdevelopment in peripheral areas.
27
28
What is a customs union
Eg EAC Removal of tariffs and quotas on trade between member states Member states agree to a common external tariff on trade with non member
29
What is a single market
Eg EU Removed restriction on free movement of labour and capital between member states Removed tariff barriers by harmonising product standards, employment laws, taxation policy, competition policy etc Adoption of common policy in one or more areas
30
What is an economic union
Eg EU Greater degree of harmonisation and coordination of economic policies Some degree of centralisation of economic policies in particular macroeconomic policies
31
What is a monetary union
Eg Euro Extends macroeconomic policy coordination to monetary policy The degree of monetary union can vary between a fixed system to a semi fixed system or the adoption of a foreign currency
32
Explain the implementation of a quota
The level of imported goods reduces due to a limit being set Supply past this limit is then produced locally This results in an increase in price as local producers are only willing to meet demand at this price
33
Advantages of economic integration
Increase consumer choice Increase consumer surplus Lower prices Increased export revenue Increased FDI Free movement of labour and capital Decreased unemployment
34
Disadvantages of economic integration
Lack of independence Reliance Trade diversion Domestic producers not protected Smaller high cost producers could go out of business Vulnerable to foreign economic shocks Lack of agreement in policy Lowering wages
35
What is the Marshall Lerner condition
A currency devaluation/depreciation will only lead to an improvement in the balance of payments in the sum of the PED for imports and exports is greater than 1
36
What is in the current account
Trade in goods(visible trade) Trade in services(invisible trade) Primary income eg interest,shares,profit Secondary income(aid/gifts)
37
What is in the financial account
FDI(<10% ownership) Eg German company invests in UK manufacturing Portfolio investment-corporate shares,bonds,hot money
38
What goes into the capital account
Debt forgiveness Inheritance tax Copyright
39
What is the J curve
Theory which states the ML condition does not occur in the short run but does in the LR
40
What does the J Curve show
After a depreciation in currency the trade balance worsens initially but then improved once firms and consumers change their habits
41
What are the reasons for the J curve
Habitual actions-humans take time to change habits/find substitutes Companies have contracts which can’t be changed until contract is up
42
43
What are the demand side(cyclical) causes of a BofP deficit
Strong domestic growth-high demand for imports Recession in trading partners-a fall in demand for exports Currency appreciation
44
Supply side(structural) causes of a BofP deficit
Low investment-higher AC of production Low productivity-higher AC of production High relative unit labour costs(perhaps due to high min wage)
45
46
Why is a cyclical deficit preferred to a structural one
• It’s temporary and often self-correcting • Can improve as demand cools or the economy recovers • Doesn’t necessarily indicate deep problems in competitiveness or productivity
47
What are the dangers from running persistent trade deficits
Deficit leads to slower AD and therefore slower growth Trade deficits undermine standard of living in LR Loss of jobs Need to balance in financial account Reflection of a lack of competitiveness
48
Evaluating a trade deficit
Depends on the size of the CA deficit in relation to GDP Size of the multiplier depends on how big the deficit is going to be Cyclical or structural?
49
Causes of a trade surplus
Competitive products produced-high exports Depreciation of exchange rate Economy is in recession High level of FDI High domestic savings and low domestic consumption
50
What is the significance of a CA surplus
Bigger the surplus the better the country is doing BofP is an injection into circular flow-can be inflationary Large CA surplus undesirable
51
What is the self correcting mechanism in trade
Deficit means that people don’t want our exports, therefore pound depreciates and exports now seem cheaper so demand increases
52
Policies to correct a CA deficit/surplus
Expenditure reducing policy-aims to eliminate CA deficit by reducing the demand for imports by reducing AD in the economy eg.contractionary fiscal and monetary policy Expenditure switching policy-eliminate CA deficit by switching domestic demand away from imports to domestically produced goods eg gov investment in infrastructure to increase competitiveness
53
Evaluation of policies to reduce CA deficit/surplus
Do they conflict with other macro objectives Cost, opp cost and time lag Use of protectionist policies Exchange rate interference may result in loss of confidence in £ Is the ML condition met? Impact on other economic agents? Eg consumer, businesses
54
Ways to manipulate the exchange rate
Decrease interest rates- hot money outflows QE-increase supply of £
55
What is a free floating currency
Where the external value of a currency depends wholly on market forces of supply and demand
56
What is a managed floating currency
When the central bank may choose to intervene in the forex markets to affect the values of a currency to meet specific macro objectives This removes some uncertainty without the degree of action needed
57
What is a fixed exchange rate system
This sets an exchange rate between two currencies Eg a country trying to join the Euro
58
How does a fixed exchange rate work
Manages at an official rate and cannot be deviated Gov have to intervene if demand or supply change to keep the rate at the pegged value
59
Benefits of a fixed exchange rate
Less uncertainty Some flexibility permitted Reduction in cost of trade(reduced hedging) Discipline on domestic producers-have to increase efficiency to be competitive
60
Benefits of a floating exchange rate
Decreased need for currency reserves Freedom for domestic monetary policy Useful instrument for macro adjustment Partial automatic correction for trade deficit Reduced risk of heavy speculation
61
Problems with floating exchange rate
Volatility puts off investment and trade Self correction of trade deficit unlikely-theoretical
62
Why is the self correction mechanism with a trade deficit only true in theory
X and m are only two factors which affect the value of a currency, many more such as speculation which have a greater impact
63
Problems with fixed exchange rate
Large level of currency reserves needed to keep rate the same-expensive Speculative attacks if not set at right level Attempts to shift supply/demand may have other macro conflicts
64

Economics (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions