Trade

Question 1

Advantages to International Trade

Answer 1

• Larger variety of goods
• Increased competition leads to innovation and lower prices
• Access to additional markets, economies of scale
• Spread of new skills ideas and technology

Question 2

disadvantages of International Trade

Answer 2

• High transport costs
• Currency exchanges can be detrimental
• non monetary costs like translating or foreign market research

Question 3

advantages of Specialisation

Answer 3

• costs are reduced so lower prices
• resources are allocated more efficiently
• global output is increased and living standards raised

Question 4

disadvantages of Specialisation

Answer 4

• Some domestic industries will be forced to shut down resulting in job loss
• makes countries more vulnerable to supply shortages and very unflexible
• over reliance on a single industry so susceptible to shocks

Question 5

When does a country have an absolute advantage

Answer 5

when its output of a product is greatest per unit than any other country

Question 6

What does specialising in a product with an absolute advantage do

Answer 6

doubles output in that product

Question 7

what is a comparative advantage

Answer 7

When a country has a lower opportunity cost of producing a good than other countries

Question 8

Why is the comparative advantage law hard to apply in the real world

Answer 8

Assumes there are no economies or diseconomies of scale, transport costs or barriers to trade, perfect knowledge, and ignores externalities

Question 9

How to work out the comparative advantage of good A

Answer 9

Good B / Good A

Question 10

Why won’t countries specialise 100%

Answer 10

Total output will decrease

Question 11

What is the alternative to 100% specialisation

Answer 11

partial specialisation which sets terms of trade where both countries combined production of goods is greater than before specialisation

Question 12

What is terms of trade

Answer 12

relative price of exports compared to imports

Question 13

How to calculate terms of trade index number

Answer 13

index of average price of exports / index of average price of imports
X100

Question 14

What graph can be used to show comparative advantage

Answer 14

PPF

Question 15

What is they y and x axis for comparative advantage PPF and how do you then plot the curve

Answer 15

Y axis is the ouput of good A and x axis output of good B, to plot the curve you join the two points on both axises that the country would produce at if they specialised in either good.

Question 16

What does partial specialisation do to the PPF

Answer 16

Can help countries to produce beyond the PPF

Question 17

How does comparative advantages influence changes in the pattern of trade

Answer 17

Countries will export their comparative advantage products and import their disadvantages so this principle is the main driver of international trade patterns

Question 18

How do NEEs influence changes in the pattern of trade

Answer 18

These countries experiencing rapid industrialisation and growth have become large manufacturers and thus global exporters. China - Hi tech goods

Question 19

How does growth of trading blocs and bilateral agreements influence changes in the pattern of trade

Answer 19

Can create favourable trading circumstances in lower tariffs and reduced barriers which boosts trade within them.

Question 20

How changes in relative exchange rates influence changes in the pattern of trade

Answer 20

SPICED and WIDEC cause fluctuations in trade levels for countries

Question 21

factors effecting the terms of trade

Answer 21

• exchange rate appreciation will improve the terms of trade was exports will rise In price
• price of raw materials affects exports
• Inflation would cause temporary improvements as exports price will rise
  –> long term would cause depreciation worsening terms of trade

Question 22

How does inflation cause a depreciation in the exchange rate

Answer 22

inflation means the price of domestic goods increases so there is less demand for domestic goods and less demand for domestic currency used to buy those goods. This causes a larger supply of domestic currency which decreases its price or it depreciates

Question 23

Impacts of changes in the terms of trade

Answer 23

• improvement of TOT can worsen the BoP
• increase in TOT may be positive for inflation as it shows falling import prices
• worsening of TOT may increase international competitiveness and improve growth

Question 24

Reasons for restrictions on free trade

Answer 24

• May be a risk of job losses if domestic firms are outcompeted by foreign
• to protect infant industries
• Ban goods with negative externalities
• Anti-dumping measures
• improve BoP
• Environmental and health concerns, ensuring they meet standards

Question 25

Infant Industries

Answer 25

domestic Industries that are just starting out and can't compete with foreign companies

Question 26

What is dumping

Answer 26

Foreign companies selling goods domestically at a price below production cost to force domestic producers out of business

Question 27

Tariffs

Answer 27

A tax put on imports domestically to make them more expensive

Question 28

Quotas

Answer 28

Can be fixed to limit amount of certain goods that can be imported

Question 29

Embargoes

Answer 29

Bans that can be put on certain products, only done for illegal items or political reasons

Question 30

Examples of non tariff policies that restrict free trade

Answer 30

- depreciation of X rate - Strict standard regulations like high safety or low emissions requirements - Subsidising domestic producers to reduce costs of production and price

Question 31

Free trade

Answer 31

Trade with no restrictions or government involvement

Question 32

Why do trade disputes occur

Answer 32

When countries may perceive other countries protectionist policies as unfair and retaliate

Question 33

example of dumping

Answer 33

China selling very cheap toys

Question 34

negative impacts of protectionist policies or on producers

Answer 34

- Reduces specialisation, which mean resources are allocated and produced less efficiently - Difficult to remove trade barriers as domestic firms may become reliant, zombie companies - Doesn't allow firms to improve efficiency through competition - Can cause retaliation and trade wars between governments reducing world trade

Question 35

negative impacts of protectionist policies or on consumers

Answer 35

- increases inequality as prices of necessities may rise impacting poorer people more - Higher prices for consumers due to lack of competition and imports expensive - less choice and variety