Trade

• What is the distinction between absolute and comparative advantage?

  Absolute advantage is producing with fewer resources, while comparative advantage is producing at a lower opportunity cost.
• What does it mean for a country to have absolute advantage?

  A country has absolute advantage if it can produce a good using fewer resources and at a lower cost than another country.
• What is comparative advantage?

  Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country.
• How can countries benefit from specializing in areas of comparative advantage?

  Countries can specialize where they have comparative advantage, which increases economic welfare.
• What are the benefits of free trade?

  • Exploits comparative advantage, leading to higher output and increased world GDP.
  • Increases economic efficiency by establishing a competitive market.
  • Creates trade by reducing barriers, leading to more consumption and economic welfare.
  • Higher exports can lead to increased economic growth.
  • Specialization allows exploitation of economies of scale, lowering average costs.
• What are some negative impacts of free trade?

  Free trade can result in job losses and contribute to environmental damage.
• What has caused the growth in exports of manufactured goods from developing to developed countries?

  Developing countries have gained an advantage in production due to lower labor costs.
• What has been the impact of deindustrialization in countries like the UK?

  Deindustrialization has led to a decline in the manufacturing sector and a focus on services.
• How has the ageing population in China affected its wage competitiveness?

  China's ageing population has led to a fall in wage competitiveness due to rising middle-class demands for higher wages.
• Why is international trade more important for developing countries than developed countries?

  International trade contributes 20% to LDC economies compared to 8% of the US economy.
• What has happened to India's share of textiles and clothing from 1995 to 2005?

  India's share of textiles and clothing fell from 35% in 1995 to 16% in 2005.
• How have China and India contributed to African infrastructure?


  China and India have invested in African infrastructure in exchange for natural resources.
• What is protectionism?

  Protectionism is the act of guarding a country’s industries from foreign competition.
• What are the methods of protectionism and their impacts?

  • Tariffs: Taxes on imports that increase domestic demand and decrease imports.
  • Quotas: Limits on foreign goods that raise prices for domestic consumers.
  • Export subsidies: Government support to encourage exports.
  • Embargoes: Complete bans on trade with specific countries.
  • Excessive administrative burdens: Increase trading costs and discourage imports.
• What is the impact of tariffs on domestic goods and imports?

  Tariffs increase the quantity demanded of domestic goods while decreasing the quantity demanded of imports.

  
• What is the purpose of export subsidies?

  Export subsidies encourage goods to be exported rather than sold domestically.
• What is a customs union?

  A customs union is a group of countries that have established a common trade policy and free trade among members.
• What are the main characteristics of the Single European Market (SEM)?

  • Free movement of goods, services, capital, and labour.
  • Approximation of administrative provisions, laws, and regulators.
  • Common competition policy across the EU.
  • Common external tariffs.
• What are the consequences of the UK's membership in the EU?

  Membership has led to trade creation, reduced transaction costs, economies of scale, enhanced competition, and increased migration.
• What role does the WTO play in trade liberalization?

  The WTO promotes world trade by reducing trade barriers, policing agreements, and settling disputes.
• What conflicts can arise between regional trade agreements and the WTO?

  Conflicts can arise when trading blocs distort world trade or impose protectionist barriers on non-members.
• How can protectionism lead to government failure?

  Protectionism can distort the market, leading to inefficiencies and a loss of consumer welfare.
• What is the impact of excessive administrative burdens on trade?

  Excessive administrative burdens increase trading costs and discourage imports.
• What is the effect of tariffs on low-income consumers?

  Tariffs are regressive and most damaging to those on low and fixed incomes.
• How does a common external tariff contradict WTO principles?

  A common external tariff contradicts WTO principles by imposing protectionist barriers on non-members while allowing free trade among members.
• What is the significance of the EU Common Agricultural Policy (CAP)?

  The CAP provides subsidies to domestic farmers, increasing their incomes and protecting the industry from foreign competition.
• How many member states are in the WTO as of 2015?

  As of 2015, there are 161 member states in the WTO.
• What is the impact of trade diversion?

  Trade diversion occurs when trade shifts to a less efficient producer within a trading bloc.
• What are the potential risks of retaliation from protectionist measures?

  Retaliation can lead to hostility between countries and further trade restrictions.
• What is the purpose of a common trade policy in a customs union?

  A common trade policy helps create and guide trading relationships with countries outside the customs union.
• What is the main characteristic of a common market?

  A common market allows free movement of goods, services, capital, and labor across borders.
• How does the EU facilitate the free movement of labor?

  The EU allows citizens to work in any member country, enhancing labor mobility.
• What are the long-term benefits of enhanced competition in a customs union?

  Enhanced competition can lead to greater efficiency and better resource allocation among firms.
• What is the significance of the BBC summary regarding EU membership for the UK?

  The BBC summary outlines the main costs and benefits of EU membership for the UK.
• What is the role of the WTO in settling trade disputes?


  The WTO acts as a judge to settle trade disputes among member states.
• How does the WTO ensure compliance among its members?

  The WTO ensures compliance by imposing trade sanctions on members who break the rules.
• What are the implications of developed countries not trading freely with developing countries?

  It limits the ability of developing countries to grow and participate in global trade.
• What is the significance of having all trading partners treated equally according to WTO principles?

  Equal treatment ensures fair competition and prevents discrimination against non-member countries.
• What is the main goal of trade liberalization?

  The main goal of trade liberalization is to reduce trade barriers and promote free trade among nations.
• How does trade creation occur within trading blocs?

  Trade creation occurs when a country consumes more imports from a low-cost producer and fewer from a high-cost producer.