1. Benefits of International Trade Flashcards
(15 cards)
What is international trade?
The exchange of goods and services between countries
Define comparative Advantage
The ability of a country to produce a good at a lower opportunity cost than another country
How does specialization benefit countries in trade?
By focusing on producing goods where they have a comparative advantage, countries can increase efficiency and output.
Define Absolute Advantage
The ability of a country to produce a good or service more efficiently than competitors
How does international trade enhance consumer choice?
It provides access to a wider variety of goods and services from different countries.
In what way does trade promote innovation?
Exposure to global competition encourages firms to innovate and improve their products.
How can trade lead to resource allocation efficiency?
Resources are directed towads industries where countries have a comparative adventage, optimizing production.
What impact does trade have on economic growth?
Trade can stimulate economic growth by increasing market size and enabling access to new technologies.
How does trade affect employment?
It can create jobs in export industries but may also lead to job losses in industries facing import competition.
What is the relationship between trade and the balance of payments?
Trade influences the current account of a country’s balance of payments, affecting its foreign exchange reserves.
What is the Balance of Payments (BoP)?
The Balance of Payments is a comprehensive record of all economic transactions between the residents of a country and the rest of the world over a specific period, including trade in goods and services, income flows, and financial transfers.
What are the main components of the Balance of Payments?
The Balance of Payments consists of three main components:
- Current Account: Records trade in goods and services, income from abroad, and current transfers.
- Capital Account: Captures transfers of capital assets, such as patents and trademarks.
- Financial Account: Reflects investments in financial assets, including direct investment, portfolio investment, and other financial transactions.
What is a Current Account deficit?
A Current Account deficit occurs when a country’s total imports of goods, services, and transfers exceed its total exports, indicating that more money is flowing out of the country than coming in through these transactions.
How can a country finance a Current Account deficit?
A country can finance a Current Account deficit by:
- Attracting foreign investment into domestic assets.
- Borrowing from international lenders or financial markets.
- Utilizing foreign exchange reserves to balance the shortfall.
What impact does a persistent Current Account surplus have on an economy?
A persistent Current Account surplus can lead to:
- Accumulation of foreign assets and increased national wealth.
- Potential appreciation of the domestic currency, affecting export competitiveness.
- Trade tensions with other countries experiencing deficits.
