Trade 2 Flashcards
PPFs of two countries that have the same opportunity costs
They have the same gradient - there are no gains from trade to be had
Key assumptions behind the theory of comparative advantage
- constant returns to scale
- factor mobility between industries
- assumes no protectionism
- transportation costs
- ignored externalities
What is the intra-industry trade
When countries explore and import similar products - they have strong capabilities in each
What is vertical specialisation
When nation’s specialise in particular stages of production
Key factors determining comparative advantage
- natural resources available
- demographics
- investment
- fluctuations in the XR
- import controls
- non-price competitiveness of producers
What is allocative efficiency
Competition from lower cost import sources drives market prices down and reduce monopoly (supernormal) profits
What is productive efficiency
Specialising and selling in larger markets encourages increasing returns to scale (economies of scale) - lower king run AC
What is dynamic efficiency
Investing in research and development and human capital
What is X-efficiency
Intense competition in markets will provide a discipline on businesses to keep their unit costs under control to remain price competitive
What is the WTO
Multi-lateral organisation promotes free trade by persuading countries to lower their import tariffs and other barriers to open markets including widespread use of import licenses, export subsidies and other non-tariff barriers
Key challenges for the WTO
- complexity of production
- shifting global economic power
- fragmentation of the global trading system
Why is the complexity of production a challenge for the WTO
Countries and producers increasingly specialise in certain stages of production depending on their comparative advantage.
Why is the shifting global economic power a challenge for the WTO
A big challenge for the WTO is to help meet the aspirations of emerging nations and overcome strains in trade relationships with developed nations
Why is the fragmentation of the global trading system a challenge for the WTO
A big risk for the WTO is that regional preferential trade agreements are by passing attempts to secure a new global trade deal
Different types of integration
- preferential trading area
- free trade area
- customs union
- single market
- monetary union
