Theme 4- Chapter 67

Question 1

What are two features of exports? (2)

Answer 1

• A firm continues to produce in its home market but exports some products to a foreign market.
• As well as physical goods, exports can also be services such as tourism and transport.

Question 2

What are 4 features of imports? (4)

Answer 2

• Imports are the goods and services that are brought into one country from another.
• Many countries try to limit the importation of goods by placing trade barriers in the way, such as tariffs (taxes imposed on imports).
• Trade liberalisation has reduced the use of tariffs.
• However, non-tariff barriers are proving harder to manage. These include practices such as giving subsidies to local firms, putting numerical limits (quotas) on imports, etc.

Question 3

Define exports.

Answer 3

Goods or services that a firm produces in its home market, but sells in a foreign market.

Question 4

Define imports.

Answer 4

Goods and services that are brought into one country from another.

Question 5

Define tariffs.

Answer 5

Taxes that are imposed on imports.

Question 6

Define international trade.

Answer 6

International trade refers to the importing and exporting of goods and services.

Question 7

Define specialisation.

Answer 7

A production strategy where a business focuses on a limited scope of products or services, resulting in greater efficiency, allowing goods/services to be produced at a lower cost per unit.

Question 8

What is comparative advantage?

Answer 8

The theory that a country should specialise in products and services that it can produce more efficiently than other countries.

Question 9

What is competitive advantage?

Answer 9

The idea that a business should specialise in any area where it can perform better than its competitors.

Question 10

What function does specialisation perform?

Answer 10

Specialisation increases the speed and skill with which a task can be done, and also saves time, thereby improving efficiency.

Question 11

Comparative advantages example: (4)

Answer 11

• David Ricardo used the example of a wool (cloth manufacture) and wine to show that England and Portugal will always benefit from trade if they specialise and produce according to what each does best.
• At the start, Portugal requires fewer days than England to make both wine and cloth (absolute advantage).
• However, Ricardo showed there would be a net gain to both countries if Portugal switched all of its production to wine and England switched all of its wine workers to cloth, and then the two countries traded.
• Total output of both products goes up and consumers in both countries goes up.

Question 12

Competitive advantages:

Answer 12

• Businesses that engage in international trade should specialise in what they do well and adds value, and this competitive advantage can help to make a profit abroad.
• Specialisation= greater efficiency —> lower costs —> reduced price.

Question 13

What is foreign direct investment (FDI)?

Answer 13

Where a firm is operating in one country and chooses to operate a part of its business in another country.

Question 14

What are three advantages of FDI?

Answer 14

• Creates jobs resulting in higher household incomes.
• Higher tax revenues means governments can provide more subsidies and grants for businesses.
• Businesses can invest in infrastructure to lower transport costs.

Question 15

What are two disadvantages of FDI?

Answer 15

• High initial costs of moving and setting up.

- Businesses may bring their own workers or have capital intensive systems, so new jobs won’t be created.