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economics > International Trade > Flashcards

International Trade Flashcards

Chapter 27

1
Q

what is international trade?

A

the exchange (buying and selling or importing and exporting) of goods and services across international territories.

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2
Q

what is an open economy?

A

an economy where international trade takes place (i.e. exports and imports)

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3
Q

what is a closed economy?

A

an economy that does not trade internationally

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4
Q

why do countries trade?

A
  • to obtain essential raw materials (oil)
  • to achieve economies of scale
  • because our climate is unsuitable for certain goods (citrus fruits)
  • to obtain a variety of goods
  • to benefit from the skills/traditions of another workforce
  • create more employment
  • increase standard of living
  • benefit from specialization of labour
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5
Q

what is the Law of Absolute Advantage?

A

…states that each country should specialize in the production of that good in which it has an absolute advantage.
i.e. if it can produce the good more efficiently/cheaply (at a lower cost) than other countries.

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6
Q

what are assumptions of the Law of Absolute Advantage ?

A 
°there are 2 countries
°there are 2 products produced 
°no transport cost exists
°1 factor of production (labour)
°free mobility of labour 
°no LDMR
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7
Q

what is the Law of Comparative Advantage?

A

…states that a country should specialize in the production of those goods and services in which it is relatively most efficient and trade for the remainder of its requirements.

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8
Q

terms of trade (formula)

A

index of export prices divided by index of import prices

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9
Q

what are terms of trade?

A

refer to the ratio between the average price of exports and the average price of imports

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10
Q

how can the terms of trade improve?

A
  1. if export prices are rising faster while import prices remain the same
  2. if export prices are rising faster then import prices
  3. if import prices fall while export prices stay the same
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11
Q

what are the assumptions/limitations of the Law of Comparative Advantage?

A
  • strategic reasons in favor of self-sufficiency are ignored
  • transport costs are ignored
  • perfect mobility of the FoP is assumed
  • the LDMR is ignored
  • free trade is assumed to exist
  • alternative employment is available
  • equal distribution of benefit occurs
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12
Q

sources of comparative advantage for the Irish economy.

A

climate,
raw materials,
educated & skilled workforce,
low rate of corporation tax

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13
Q

how does specialization encourage international trade?

A

°greater efficiency in the allocation of scarce resources
°greater interdependence
°increased wealth and rising aggregate demand
°lower costs and prices
°division of labour
°economies of scale

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14
Q

what factors affect the competitiveness of Irish-based firms involved in international trade

A
  1. rate of inflation (if ours is high- its bad for exports)
  2. exchange rate (if our currency is expensive - nobody wants to buy our goods)
  3. transport cost (Ireland is an island)
  4. production costs
  5. labour costs
  6. infrastructure cost
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15
Q

importance of international trade to the Irish economy.

A 
economic growth,
increased standard of living,
variety and choice of goods/services,
more competitive prices,
employment/investment opportunities,
economies of large-scale production,
more efficient use of scarce resources
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16
Q

define exporting

A

the production and sale of Irish goods/services to other countries

17
Q

what are visible exports?

A

goods sold to other countries

e.g.beef, butter, pharmaceuticals

18
Q

define importing

A

buying foreign-produced goods and services

19
Q

what are visible imports?

A

goods that are bought from foreign countries

e.g. wine, cars, tea, coffee, citrus fruits

20
Q

what is the balance of trade?

A

the difference between the value of visible exports and visible imports (goods)

21
Q

what are invisible exports?

A

services sold to other countries

e.g. an Irish band playing a concert in London, Spanish students studying here, a French family holidaying here

22
Q

what are invisible imports?

A

services that are bought from foreign countries

e.g. a foreign singer performing in Dublin,
an Irish family holidaying in France

23
Q

what are benefits of imports to the Irish economy?

A

increased choice of goods and services,
lower prices for consumers,
access to raw materials,
domestic production would be too expensive

24
Q

what are benefits of exports to the economy?

A

exporting creates employment,
money flows into the economy,
gives firms access to larger markets,
investment increases

25
Q

what are implications for Ireland as a small open economy

A
  • inadequate infrastructure
  • skilled labour shortages
  • increased costs
  • dependance on foreign markets for survival
  • housing crisis
26
Q

what is free trade?

A

free trade states that there are no barriers to the movement of goods and services between countries

27
Q

economic justifications of restricting free trade

A
  • to create/protect domestic employment
  • protect indigenous firms/infant industry
  • protect against low-wage competition
  • to increase government revenue
  • retain wealth within the country/protect the balance of payments
  • prevent ‘dumping’
  • protect the nation
  • strategic purposes
  • political reasons
  • senile industry argument
28
Q

what is dumping?

A

occurs when goods from a country are sold abroad at a lower price than the price charged for them at home

29
Q

what is protectionisms?

A

refers to efforts by a government to restrict free trade, particularly imports

30
Q

what barriers can the government introduce to prevent imports?

A

tariffs
quotas
administrative barriers
trade embargo

31
Q

what are tariffs?

A

a tax on imports

makes imports more expensive and may make a domestically produced alternative relatively cheaper (import substitution). is an important source of government revenue.

32
Q

what are quotas?

A

a physical limit placed by a government on the amount of a certain good allowed to enter the country.

33
Q

what are administrative barriers?

A

obstacles including paperwork, bureaucracy and red tape that a government puts in place to create inconvenience for the importer in the hope that they will be discouraged from importing

34
Q

what is a trade embargo?

A

a complete ban on the importing of a particular good or goods from a country or a total ban on all trade to and from a particular country

e. g. all trade embargo between Us andbCuba
e. g. fireworks into Ireland

35
Q

what is a trading blog?

A

a group of countries sharing free trade agreements with each other.

e.g. European Union, NAFTA , APEC

36
Q

what is the WTO ?

A

World Trade Organization

  • consists of 153 countries(including Ireland)
  • promotion of free trade
  • principle of non-discrimination
37
Q

what are the objectives of the WTO?

A
  • reduce & eliminate all barriers to world trade
  • promote fair trade
  • negotiate with governments of member states
  • arbitration in international trade disputes between member states
38
Q

what are benefits of the WTO?

A
  • helps to promote peace
  • handles things peacefully & constructively
  • reduces some inequalities
  • reduces cost of production
  • provides more choice of goods and services
  • increases national & personal income
  • stimulates economic growth

economics (28 decks)

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