2.4.3 International trade

Question 1

What is specialisation

Answer 1

When a country, region or firm concentrates their production in one particular area/sector.

Question 2

What are advantages of specialisation?

Answer 2

Increases productivity and efficiency of the workforce/firm so average costs fall and greater profits can be achieved.

Question 3

What are disadvantages of specialisation?

Answer 3

Work can be monotnous as focused on one area of production, also can cause structural unemployment if demand for that sector decreases and whole economy shifts in sectors

Question 4

What are the types of trading blocs?

Answer 4

• preferential trade areas
• free trade areas
• customs union
• common markets
• economic unions

Question 5

Define trading blocs?

Answer 5

An agreement between a group of countries to have free trade amongst them, no barriers to trade.

Question 6

What is a preferential trading bloc?

Answer 6

Where barriers to trade are lifted but only on certain goods/services leading to partial trade liberalisation.

Question 7

What is a free trading bloc?

Answer 7

All barriers to trade have been eliminated leading to trade liberalisation within the trading bloc.

Question 8

What is a customs unions?

Answer 8

Where all trade barriers have been removed within the bloc but also share the same agreements when trading outside the bloc

Question 9

What are common markets?

Answer 9

Where common factors of production are traded with no barriers.

Question 10

What are economic unions?

Answer 10

A mixture of a customs union and common market.

Question 11

What is the difference between absolute and comparative advantage

Answer 11

Absolute advantage is where a country can produce more goods/services than another using less factor inputs/resources. In other words, can produce more goods for cheaper.
Comparative advantage however is where a country can produce more output but with a lower opportunity cost.

Question 12

What are some advantages of trade and growth/

MNC’s

Answer 12

MNC’s seeking to start up in foreign countries will open up employment opportunities lowering the unemployment levels in the foreign country allowing for growth fo the economy.

Question 13

2nd advantage

specialisation

Answer 13

If countries are to trade through specialisation it lowers their avergae costs and makes them more globally competitive as lower AC can be pushed onto their prices leading to greater export-led growth.

Question 14

What are disadvantages of trade and growth?

Answer 14

Over specialisation can lead to countries becoming too heavily reliant on one sector of the economy to generate income and if demand falls for that sector will have significant impacts on the economy. This is why countries such as UAE and Saudi are starting to move away from only specialising in oil and other sectors too, such as the entertainment and sports hosting worldwide events such as boxing and f1.

Question 15

2nd disadvantage

Answer 15

Trade and growth is always beneficial but can impact and economy negatively if the economy was specialising in a sector but now is seeing a structural change in the economy. Therefore the economy is moving from the primary to secondary sector for example. This will cause for structural unemployment.

Question 16

3rd disadvantage

driving local producers out

Answer 16

Countries such as China which benefit from absolute advantage can sell their products for very low prices as they can produce it for cheap and not use that much factor inputs. So they will sell these goods off and trade very cheap experiencing very high demands. As a result local producers will be driven out of the market due to the predatory pricing strategy. This is known as dumping.