International Trade

Question 1

International trade

Answer 1

International trade is the exchange of goods and services between the countries

Question 2

Exports

Answer 2

Exports are the selling of goods and services to other countries​

Question 3

Imports

Answer 3

Imports are the buying of goods and services from other countries​

Question 4

Balance of Payments on Current Account.

Answer 4

Exports minus imports makes up the Balance of Payments on Current Account. This explains the financial relationship between the UK and the rest of the world​

Question 5

Reasons for international trade

Answer 5

Wider availability of goods and services to society​

Allows countries to specialise leading to cost advantages e.g. through economies of scale and hence competitiveness​

Access to new markets​

Improved political links and cultural understanding leading to better international relations​

Allows businesses and economies to spread risk​

Access to resources, technologies and expertise​

Extend a product life cycle and reduce seasonality​

​

Question 6

Free trade

Answer 6

Free trade is when international trade is left to market forces without any intervention​

​

Question 7

Protectionism

Answer 7

Protectionism is when a country takes action to protect its own industries by restricting trade with other countries​

Question 8

Reasons for protectionism

Answer 8

Protect domestic industry and jobs​

Negative externalities of some goods should be blocked from domestic markets (illegal drugs & weapons)​

Placing restrictions on imports may help to reduce a balance of payments deficit on current account​

Question 9

Reasons for free trade

Answer 9

Wider range of choice for consumers​

Access to new markets including labour and manufacturing ​

Take advantage of economies of scale – reduce costs for producers ​

Question 10

Protectionist measures

Answer 10

Tariffs​

Taxes placed on imported goods that are not applied to domestic goods​

​

Quotas​

A physical limit on the volume of imports entering a country ​

​

Government legislation​

Countries might employ measures such as complex legal forms, health and safety inspections and specific product specifications​

These will discourage imports by raising costs​

​

Domestic subsidies​

Government payments to domestic businesses to help reduce production costs and improve competitiveness​

​

Embargoes​

A total ban on imported products​

The UK has previously imposed embargos on Syrian oil exports as a political measure​

Question 11

Trading blocs

Answer 11

Trading blocs are when the governments of a group of countries agree to trade together freely i.e. normally with no trade barriers​

The countries are normally grouped together geographically e.g. the European Union (EU)​

The members of a trading bloc make preferential economic, and sometimes political, arrangements to boost trade within the member states​

Question 12

Examples of different trading blocs

Answer 12

Preferential Trade Areas​

Members agree to either reduce or eliminate trade barriers for a select number of goods or services, resulting in partial trade liberalisation​

Free Trade Areas​

Members agree to either reduce or eliminate trade barriers for all goods and services, resulting in trade liberalisation​

Customs Unions​

Members agree to the removal of trade barriers amongst themselves and a common approach to trade barriers when dealing with countries outside of the bloc​

In a sense the bloc is now acting as one homogenous group ​

Common Markets​

Members agree to the removal of trade barriers as well as the freedom of movement of factors of production within the bloc​

Often also involves the agreement of common economic policies​

Economic Unions​

Comprises of the features of both a customs union and a common market, including common economic policies​

Single Market​

When countries agree to trade without any barriers e.g. a customs union, common market, economic union​

Question 13

Impact on business on trading blocs

Answer 13

Free trade within the bloc encouraging specialisation and trade​

Easier access to knowledge, workers and components​

Economies of scale​

Take advantage of favourable differences between members e.g. taxes or labour costs​

May reduce trade with countries outside of the bloc​

Not all members may have same power​

May damage domestic industries

Question 14

Problems when dealing with international markets

Answer 14

Different tastes​

Language barriers​

Cultural differences ​

Inaccurate translations ​

Exchange rate fluctuations​

Different Health and Safety standards​

Red Tape​

Distribution issues ​