Unit 3, topic 1 exam

Question 1

Absolute advantage

Answer 1

the ability of a nation to produce
commodities more efficiently than another nation

Question 2

Comparative advantage

Answer 2

the ability of a nation to produce a commodity with a lower opportunity cost than another nation

Question 3

Competitive advantage

Answer 3

capacity of a nation’s industries to innovate and upgrade

Question 4

Factor endowment

Answer 4

the supply of the
factors of production (land, labour, capital
and enterprise) that exists in a country

Question 5

International economic problem

Answer 5

• nations distribute their scarce resources according to national objectives.
• Each nation seeks to get their resources through international trade to compensate for the significant differences in factor endowment among nations.

Question 6

Causes of the international economic problem

Answer 6

1. Unequal Distribution of Natural Resources
2. Unequal Distribution of Capital and Technology
3. Unequal Distribution of Human Skills
4. Desire for Improved Standard of Living
5. Profit motive

Question 7

Capital

Answer 7

the stock of human-made resources (equipment) used to create further goods and services

Question 8

Advantages of International trade

Answer 8

1. Access to a variety of goods and services.
2. Economic growth: Exporting goods can boost production and create jobs.
3. Efficiency: Countries focus on what they produce best.
4. Lower costs: competition from international markets can lead to cheaper products.
5. Innovation: Exposure to global markets encourages businesses to improve.

Question 9

Disadvantages of international trade

Answer 9

1. Dependency: Over-reliance on other countries can be risky during global disruptions.
2. Loss of local industries: Domestic businesses may struggle to compete with cheaper imports.
3. Economic inequality: Benefits may not be distributed evenly within a country.
4. Environmental impact: Transporting goods globally increases carbon emissions.
5. Trade imbalances: Importing more than exporting can lead to economic challenges.

Question 10

Reasons for international trade complexity

Answer 10

• Different Currencies
• Different Cost Structures
• Social Differences
• Technical Differences
• Different National Policies
• Multinational Corporations

Question 11

Globalisation

Answer 11

the growing integration (combination) of national economies to form a single interdependent global economy

Question 12

What are two trade-related measure of the level of globalisation?

Answer 12

1. Law of One Price
2. Trade intensity

Question 13

Law of One price

Answer 13

states that in an efficient market with no trade barriers (such as tariffs) and minimal transportation costs, identical goods or services should sell for the same price. (Assuming perfect competition)

Question 14

Tariffs

Answer 14

government tax on imports or exports

Question 15

Trade Intensity

Answer 15

Ratio of trade to output, measures the integration of product markets in the world economy

Question 16

Multinational corporation (MNC)

Answer 16

Enterprise operating in different countries but is managed from home country.

Question 17

Supply chain

Answer 17

system of organisations, people, activities, information, and resources involved in moving a product or service from supplier to consumer

Question 18

What are the non-government institutions?

Answer 18

World trade organisations (WTO), World Bank, International Monetary fund (IMF)

Question 19

Role of World Bank

Answer 19

helps developing countries out by offering loans with little or no interest, funding infrastructure, and trying to convince private investors to channel their money into poor countries.