Trade Flashcards
what does PPF stand for
production possibilities frontier
what does the ppf show
a graphical representation of 2 goods that can be produced by diverting resources from one good to another
what is a comparative advantage
when the opportunity cost of producing a good is lower than another country
is it possible for a country to be able to produce more of a good but still lack comparative advantage
yes
eg germany technically has more resources and could produce more pharmaceutical goods than ireland but this would mean they’d have to allocate those resources away from a market their even more productive in eg car manufacturing
after beginning to export a good, is the world price higher or lower than the domestic price
higher
how does opening up to trade make a country more efficient
with trade, extra surplus is created that didn’t belong to either consumers or producers before
who gains more from exporting, consumers or producers
producers as there is more demand for their product
consumers have a higher price
who gains more from importing, consumers or producers
consumers as they gain lower prices from imported goods
producers domestically find it hard to compete with world prices
after beginning to import, is the world price higher or lower than the domestic price
lower
why would a country want to have trade policy
to protect domestic producers eg farmers
types of restrictive trade policy
tariffs
quotas
other non tariff barriers
example of trade policy used in past
by US and UK to create successful industries
what does WTO stand for
world trade organisation
what is half of all irish exports made up of
chemicals and computer services
up to what % does US apply tariffs on Chinese products
25%
benefit of free trade
increases economic output and income
how to calculate the opportunity cost of good X
sacrifice in good X / gain in good Y
describe the shape of the ppf
bowed outwards in shape
which is the most efficient part of the ppf
most outmost part
when can the ppf curve shift
when theres more productive technology
when theres more education = more productive labour force
who has an absolute advantage
whichever producer can produce using fewer inputs than the other
who has a competitive advantage
whichever producer has the lowest opportunity cost
what is specialisation
when each country concentrates on the product that they have the least opportunity cost
why does china have a great comparative advantage
extremely cheap labour
as China’s labour force become more aware of their low labour costs and demand higher wages, how will China maintain their competitive advantage
through investing in technology and innovation to make production costs as cheap as possible
if the domestic price of a good is less than the world price, what should the country do
export their good
they have comparative advantage
if the domestic price of a good is greater than the world price, what should the country do
import the good
what is a tariff
tax on good produced abroad and sold domesticallly
what is a quota
limit of a good produced abroad and sold domestically
other barriers that arent tariffs or quoats
complex or discriminatory rules on origin and quality
sanitary conditions
administrative regulations
currency manipulation
benefits of trade
increased variety of goods lower costs increased competition enhanced flow of ideas and innovation economic growth
arguments to restrict trade
domestic job loss
national security
infant industries and older industries
unfair competition
what is a net exporter
a country who exports more than they import eg USA
What is a net imprter
a country who imports more than they export eg Ireland
benefits of trade barriers
protect domestic industries health reasons enviornmental reasons prevent unfair competition decrease reliance on supply chains
disadantages of trade barriers
less choice for consumers higher prices for consumers black markets may establish lower demand, unemployment drop in productivity
ireland has the highest tariffs on what products
sugar beet
why
mushrooms
milk
how can AD be boosted by trade
nx increases
c increases as more goods available
i could boost with foreign investment
how can LRAS be shifted by trade
higher output and lower prices shifts LRAS
Also foreign investment changes capital
New innovation and technologies can be introduced
if an industry is present in many markets worldwide, will fluctuations be less or more intens
less as one individual country wont have a huge impact
why can trade be great for smaller countries
cooperation and good established relationships with the larger countries can be beneficial
(less likely to have wars)
