Unit3 AoS3 DP1 - Gains from International Trade

Question 1

Trade Liberalisation

Answer 1

Is a government policy which reduces protection of local industry by cutting tariffs, subsidies, import quotas and the signing of FTAs.

Question 2

Trade Protection

Answer 2

Is a government policy which uses high tariffs, import quotas and subsidies so local industry can compete with imports.

Question 3

Free Trade

Answer 3

Involves abolishing protection of local industry by removing tariffs, subsidies and import quotas, thereby forcing local firms to be more internationally competitive.

Question 4

Tariffs

Answer 4

In indirect tax added onto the price of imports to make them more expensive to local consumers to protect local industries from overseas competition.

Question 5

Subsidies

Answer 5

Are government concessions or cash payments to local firms to help cover some of their production costs, allowing local products to be sold more cheaply and competitively locally and overseas.

Question 6

Import Quotas

Answer 6

A government restriction on the quantity of particular goods that can be imported.

Question 7

Free Trade Agreements

Answer 7

Treaties between two or more countries agreeing to reduce or remove various forms of protection of their local industries to facilitate stronger trade between participating countries.

Question 8

International Specialisation

Answer 8

Occurs when countries produce only a limited range of goods and services, focusing on those areas where they have greatest comparative cost advantage.

Question 9

Absolute Cost Advantage

Answer 9

Occurs if a nation is the cheapest or most efficient producer of a single good or service in the world. More resources are allocated to most productive areas which increases (GDP) for the same number of inputs which has the impact of raising incomes and living standards.

Question 10

Comparative Cost Advantage

Answer 10

Occurs when a nation specialises in key areas of production where cost advantages are greatest or disadvantages are lowest. More resources are allocated to the most productive areas which increases (GDP) for the same number of inputs, thereby, raising incomes and living standards.

Question 11

Economies of Large-Scale Production

Answer 11

Reductions in a firm’s average costs per unit associated with an increase in its annual production level.

Question 12

Gains from International Trade
Effect on Living Standard

Answer 12

1. Lower prices for consumers
2. Greater choice for consumers
3. Economies of Scale
4. Access to more resources
5. Increased specialisation, competition and efficiency

Question 13

Negative Effects on Living Standards

Answer 13

1. Benefits of international trade not shared equally between individuals and nations.
2. Rise in structural unemployment as a result of foreign competition may cause local business closures.
3. Specialisation creates global inter-dependence, making nations more vulnerable to disruption. eg, supply chain shocks, wars, pandemics, etc..
4. Environment costs from increase in global trade leading to higher emissions from the transportation of goods, over exploitation of common access and non-renewal resources.