Benefits / costs of trade

Question 1

List the benefits of trade

Answer 1

Exploitation of comparative advantage
Economies of scale
Increased competition
Increased choice

Question 2

List the costs of trade

Answer 2

Cultural impact (homogenisation)
Overdependence
Environmental damage
Structural unemployment
Inequality

Question 3

Explain comparative advantage as a benefit of trade

Answer 3

Allows the benefits of specialisation
Should lead to greater total global production and increased living standards

Question 4

Explain economies of scale as a benefit of trade

Answer 4

Opening up trade increases the size of markets that firms compete in
This allows them to expand production compared to if they only produced domestically
Economies of scale allows firms to reduce costs and pass on lower prices to consumers

Question 5

Explain increased competition as a benefit of trade

Answer 5

Exposure to more competition means firms have greater incentives to cut costs and become more efficient
Particularly beneficial if an industry would otherwise be a domestic monopoly
Also promotes greater innovation as firms strive to produce more appealing products

Question 6

Explain overdependence as a cost of trade

Answer 6

Problem if a country becomes too reliant on one product
Sudden difficulties in the supply of the product or drop in demand for the product are problems

Question 7

Explain structural unemployment as a cost of trade

Answer 7

As the pattern of trade changes, existing domestic industries may go into decline
Regional unemployment may result

Question 8

Explain environmental damage as a cost of trade

Answer 8

Theory of comparative advantage assumes no transport costs and no environmental impact
In the real world there is an environmental impact of the extra transport required to ship products between countries

Question 9

Explain inequality as a cost of trade

Answer 9

Trade could exacerbate inequalities if low skilled workers lose jobs, due to offshoring, for example