International Trade

Question 1

Comparative advantage and opportunity costs

Answer 1

Opportunity cost of producing a good is lower than opportunity cost if another country producing that same good

Question 2

Absolute advantage assumptions

Answer 2

Two countries in the world
They only produce two products
Both have the same amount of resources

Question 3

Trade

Answer 3

Allows more efficient use of global resources

Some countries can produce goods and services more efficiently than others (different factor endowments)

Question 4

Influences of international trade

Answer 4

Output
Employment
Price level

Question 5

Adam Smith

Answer 5

International trade allows for specialisation which increases efficiency and increases economic welfare

Question 6

Improving terms of trade

Answer 6

> 100

For every export, you can get more units of imports

Question 7

Worsening terms of trade

Answer 7

<100

For every export, you can get less units of imports

Question 8

Global trade pattern example

Answer 8

Industrialised countries with countries lacking industry
China CA in manufactured goods
Australia CA in agricultural capabilities

Question 9

Improve international competitiveness

Answer 9

Increase productivity
Decrease unit labour costs
Improve exchange rate
Improve product quality

Question 10

International trade advantages CA

Answer 10

Countries can specialise (use scarce resources more efficiently = reduced costs = increase global output = increase living standards)
Consumers benefit (increase competition = increase production/quality = reduces price = increase choice/living standards)
Firms benefit (larger market = benefit from EoS and specialisation)
New ideas/skills

Question 11

International trade disadvantages CA

Answer 11

Increase competition from specialisation (contraction/expansion of UK industries = occupational immobility of labour = structural unemployment)
Specialisation leading to over reliance
Higher transport costs 
Currency exchange can cost 
Increase globalisation