4.1 The importance of International Trade

• International Trade is defined as ''the exchange of goods and services between countries''

  • Exports are ''Goods and services sold abroad''
  • Imports are ''Goods and services bought from abroad''
• Why Countries import and export goods & Services:

  • Countries have different scarce resources, which may be more suited to the production of certain goods + services than others.
  • Countries specialise in what they are most effective at producing --> If every country did this, world output from the same number of scarce resources will rise. Each country then exports any SURPLUS which they have. They EXCHANGE one surplus for another country's surplus via importing and exporting.
• Benefits of International Trade for producers:

  • Access to much larger markets
  • Increased competition -> Firms will be more efficient, because in order to lower selling prices, they have to produce at lower AC's.
  • Allows firms to specialise ->Firms now have a large enough market to sell to, so will specialise to sell any surplus which they produce. They will then be able to lower AC's.
• Benefits of international trade for consumers:

  • Lowe prices -> More countries now produce goods at a cheaper price *see diagram* due to increased competition.
  • Greater choice of goods + services -> Consumers now have access to goods the UK may not have been able to produce.
  • Greater innovation + quality of goods -> A rise in competition will lead to firms investing in Research + Development, leading to more motivation and a better quality product.
• Free trade is defined as ''Free movement of goods and services between countries without restriction''
• The full extent of benefits can only be realised if there is FREETRADE. This means that there must be no protectionist measures in place.

  Protectionism refers to any actions which govt. may takes to restrict/ limit trade. The EU is the world's largest single- market area which includes a free trade area (all protectionist measures have been withdrawn).
• The EU is defined as ''The economic and political group of countries in Europe that have free trade with each other''