Chap 36

Question 1

Advantages of specialization on consumers

Answer 1

1. High output- enables consumers to enjoy more goods and services and hence have higher living standards.
2. Firms will develop skills and techniques- raises the quality of the product.
3. Lower costs of production-lower price.

Question 2

Disadvantages of specialization on consumers

Answer 2

1. Monopoly (One country or a small number of countries may gain control
   of most of the global market for a product)- use its power to restrict supply and push up price.
2. If consumers are buying products from foreign specialists, those firms may not follow the same health and safety standards as in the home country.
3. Any problems that may occur in the countries that are producing the product, including natural disasters, may mean that the products are unavailable, at least for some time.

Question 3

Advantages for firms

Answer 3

If they produce on a large scale- economies of scale (buying and technical economies)

2. Firms can buy their raw materials from specialist firms, which are producing high quality raw materials at low costs.
3. Engaging in international trade can help firms in the exchange of new management ideas, information about new products and new technology.

Question 4

Disadvantages for firms

Answer 4

1. If firms become more dependent on other countries, they can be affected by events in those countries (taxes on imports /restrict exports)
2. Firms could experience a fall in demand. Tastes may change, firms in other countries may become more efficient at producing the product or a substitute product may be developed.

Question 5

Advantages for economy

Answer 5

1. High real GDP
2. (w/ trade) Allows an economy to consume outside its production possibility curve (raises living standards & reduces absolute poverty)
3. No unemployed resources
4. Low inflation rate
5. Reputation can attract more sales (&exports) and ancillary industries to set up in the country

Question 6

Disadvantages for economy

Answer 6

1. Structural unemployment may increase if labour is occupationally or geographically immobile.
2. If demand suddenly falls or costs rise, the country can run into difficulties
3. Transportation- If the goods are heavy and have to be transported long distances, it may be more efficient for the importing economies to produce them themselves

Question 7

Specialisation & International Trade

Answer 7

Producing a relatively narrow range of products - export

Gains revenue for spending on imports of products that their citizens want to buy, but their countries are not producing.

Question 8

The difference between international and internal trade

Question 9

What is trade

Answer 9

Trade involves the exchange of goods and services.

Question 10

What is international trade

Answer 10

International trade, which can also be referred to as external trade, is the exchange of goods and services between countries.

Question 11

What is internal trade

Answer 11

Internal trade is trade within a country.

Question 12

Risks & effort in internal trade

Answer 12

• Arrange and pay for transport
• May have to wait for the payment of goods.

Question 13

Benefits of international trade

Answer 13

• Enables firms to reach a wider market
• Take greater advantage of economies of scale
• Source their products from a wider area
• Earn higher profits

Question 14

Problems of international trade

Answer 14

1. Greater distances
2. Buyers and sellers speaking different languages
3. Differences in culture affect the type of products & marketing adopted
4. Trade restrictions may also make it difficult for firms to sell their product abroad.
5. Tariffs on imports (raises the price)
6. More competition
7. Foreign currencies