International Trade Flashcards
Explain globalisation
Globalisation - The increasing development of the links which bind nations, these links may be economical(trade, investment, production and finance) political (UN, WTO) or cultural
What are the four drivers of globalisation
Market drivers
Cost drivers
Government drivers
Competitive drivers
Define Absolute advantage
A country has an absolute advantage over another in the production of a good if it can produce it with fewer resources than the other country
Define comparative advantage
A country has a comparative advantage over another in the production of a good if it can produce it at a lower opportunity cost - opportunity cost
Define the law of comparative advantage
Provided opportunity costs of various goods differ in two countries, both of them can gain (win-win) from mutual trade if they specialise in producing (and exporting) those goods that have relatively low opportunity costs compared with the other country
Define factor endowments
the land, labor, capital, and resources that a country has access to, which will give it an economic comparative advantage over other countries
What product should a country invest time into if given a choice of two
Time should be invested into goods which the opportunity cost is lower for economy
What is specialisation
Specialisation is the essential basis for trade - both countries can be better off if they produce the good they can produce at a lower opportunity cost
What are the limits to specialisation
A competitive advantage exists
Increase opportunity costs - the more you produce the more opportunity costs are
Comparative cost advantage
What are some gains from international trade
Decreasing costs - large scale production Differences in demand Increased competition Engine of growth Non-economic advantages
Explain protectionism
Economic policy of restricting imports from other countries
What would be reasons for protectionism
Infant industries - Protect growing industries that might lead to competitive advantage in the future
Reduce reliance on goods with low potential
To prevent dumping - subsidised exports
To exclude foreign monopolies
Reduce market risk - Diversify economy away from one good. Commodity price means economy will follow the price of that good ex: Copper prices in Zambia
Reduce influence of trade on consumer preferences- cultural downside
Prevent harmful goods - prevent importing ex: drugs
To allow for externalities
Why should trade be restricted three reasons
Collective bargaining
Preserve declining industries
Non-economic arguments
Explain collective bargaining
making sure there not overly dominant market player that reduces people’s ability to strike a good deal
How do governments restrict trade
Tariffs - Custom duties on imports
Quotas - Restrictions on the amount of certain goods that can be imported
Subsidies - Give domestic products a price advantage over imports
Administrative regulations - Time delays, excessive paperwork
Direct support - government favouring domestic producers
