International Trade

Question 1

Balance of payments

Answer 1

Shows the financial transactions of one nation with the rest of the world

Question 2

Absolute advantage

Answer 2

Assumes that countries would gain from specialisation if they are absolutely more efficient in the production of one product compared to another country

Question 3

Law of Comparative Advantage

Answer 3

Shows that countries can gain from specialisation even if one country is more efficient at producing all goods

Question 4

Law of comparative advantage (def.)

Answer 4

A country has a comparative advantage in producing a product if it can produce that product at a lower opportunity cost than any other country. The ability to produce a good at a lower cost, relative to other goods

Question 5

Economic Efficiency

Answer 5

If two countries specialise in producing the product in which they have a comparative advantage, they will increase the total value of available goods and services to those countries

Question 6

Absolute advantage (def)

Answer 6

Means an economy can produce more of a good in the same time period. It means they can produce at a lower absolute cost

Question 7

Tariff

Answer 7

A tax or duty levied on the traded commodity as it crosses a national boundary

Question 8

Quota

Answer 8

A direct quantitative restriction on the amount of a commodity allowed to be imported or exported- limits the maximum quantity of a good that may be imported in a given period

Question 9

Voluntary export restraints (VERS)

Answer 9

Importing country induces another nation to reduce its exports of a commodity under threat of higher all-round trade restrictions

Question 10

Export subsidies

Answer 10

Direct payments (or tax relief/ subsidies loans) to foreign buyers to stimulate exports