Week 4 - pattern of trade; terms of trade

Question 1

What is a geographical pattern of trade?

Answer 1

This shows the countries with whom businesses and people trade across borders

Question 2

What is intra regional trade?

Answer 2

Trade between countries in the same region e.g. European Union

Question 3

What is the commodity pattern of trade?

Answer 3

It shows the type of products that are traded internationally.

Question 4

What type of exports do economically less developed countries rely on?

Answer 4

Primary product exports

Question 5

What type of pattern of exports do advanced economies typically have?

Answer 5

Diversified - both manufacturing and service sectors.

Question 6

What is gravity theory?

Answer 6

When countries tend to trade with other nations in closest proximity

Question 7

Give 2 reasons that explain gravity theory

Answer 7

1. Shared borders facilitate high levels of trade and labour mobility. 2. Shared language can cut the cost of market transactions

Question 8

Give an example of a country with high level of primary product dependence

Answer 8

Angela - 89% of exports are crude petroleum.

Question 9

How does pattern of trade change?

Answer 9

As countries move through stages of development. As nations become increasingly complex, they can supply a greater range of products in global economy. Patterns of trade adjust as countries develop a new comparative advantage.

Question 10

What does the emergence of a new diverse pattern of trade require?

Answer 10

Significant investment in human and physical capital.

Question 11

What factors affect comparative advantage?

Answer 11

1. Quantity and quality of natural resources. 2. Demographics e.g. ageing population etc. 3. Rates of new capital spending e.g. infrastructure investment. 4. Investment in research and development which can drive business innovation. 5. Fluctuations in the exchange rate. 6. Import controls e.g. tariffs, export subsidies and quotas can create an artificial comparative advantage. 7. Non price competitiveness - product design, innovation, branding.

Question 12

What are the largest emerging economies?

Answer 12

BRICs - Brazil, Russia, India, China. In addition, there are the CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa).

Question 13

Give 3 ways in which emerging economies can impact patterns of trade

Answer 13

1. Rising income = they start to purchase more goods/services that are not just necessities. 2. Attract MNCs plus own large companies e.g. Tata in India. 3. Currency volatility in emerging markets can have a large impact on commodity prices in developed economies. 4. Rising tension between developed and developing economies, including trade wars.

Question 14

How can trade blocs impact trade patterns?

Answer 14

Often lead to more intra regional trade (within the trade bloc itself) and less inter-regional trade (trade between region/blocs). This may mean that countries do not always gain from benefits of specialising according to their comparative advantage.

Question 15

State three factors that influence the pattern of trade

Answer 15

1. Comparative advantage 2. Trade blocs and bilateral trading and 3. Impact of emerging economies.

Question 16

What are the terms of trade?

Answer 16

Terms of trade measure the relative prices of a country’s exports compared to the cost (prices) of the imported goods and services. It is a ratio between average export prices and average import prices

Question 17

What is the formula for the index terms of trade?

Answer 17

Index of export prices/index of import prices X 100

Question 18

Give three factors that influence the terms of trade

Answer 18

1. World prices for raw materials and components 2. The exchange rate. 3. Import tariffs and other trade barriers such as quotas.