Trade Flashcards
What is international trade
The exchange of products (goods and services)
Static gains
Improvements in allocative and productive efficiency in markets
Dynamic gains
Gains in welfare from proved product quality, increased choice and faster and more innovative behaviour
What is free trade
Free from artificial barriers such as import tariffs and quotas
Specialisation
Specialisation of scarce resources
Why is trade important for developing countries
- source of foreign currency to help balance of payments
- financing imports
- injections into flow
- increased employment
- falling consumer prices
Risks of trade and investment for developing countries
- volatile global prices
- volatile capital prices
- structural unemployment from opening up to trade and investment
- resource trap
Absolute advantage
- a country can produce a product with less resources
- same factors of production
Comparative advantage
- when a country has lower relative opportunity cost when it decides to specialise
- sacrifice of alternative products
Examples of countries that heavily specialise in key industries
Zambia- copper mining
Bangladesh- textiles
Import tariffs
World supply is horizontally below equilibrium
Then import tariff above that- increase world prices
Consumer welfare increases
Non tariff barriers
- property rights
- domestic subsidies
Export subsidy
Government policy to encourage export of goods and services
World price below equilibrium
Shift supply to right
Arguments against trade protectionism
- retaliation
- market distortions
- higher consumer prices
- inequality
- higher export costs
Advantages of protectionism
- domestic jobs remain
- lack of dumping
- protect industries
- gov tax revenues
