International Economy

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Created by
Matthew Mccolm

Cards (116)

  • UK imports (top 20 countries)
    • Germany
    • China
    • USA
    • Netherlands
    • Norway
    • France
    • Belgium/Luxembourg
    • Italy
    • Ireland
    • Spain
    • Japan
    • Sweden
    • Hong Kong
    • Switzerland
    • Russia
    • Poland
    • Canada
    • Denmark
    • India
    • Turkey
  • UK exports (top 20 countries)
    • USA
    • Germany
    • Netherlands
    • France
    • Ireland
    • Belgium/Luxembourg
    • Italy
    • Spain
    • China
    • Sweden
    • India
    • Switzerland
    • Hong Kong
    • Russia
    • United Arab Emirates
    • Canada
    • Japan
    • Australia
    • Poland
    • Turkey
  • UK imports (composition - goods)
    • Food, beverages and tobacco
    • Basic materials
    • Oil
    • Coal, gas and electricity
    • Semi-manufactured goods
    • Finished manufactured goods
    • Others
  • UK imports (composition - services)
    • Transportation
    • Travel
    • Communications
    • Construction
    • Insurance
    • Financial
    • Computer and information
    • Royalties and license fees
    • Other business
    • Personal, cultural and recreational
    • Government
  • The UK is now a net importer of oil
  • The UK is now net importers of both semi-manufactured and finished goods
  • Whisky exports are the most significant sector in the 'food and drink' category of UK exports
  • UK exports (goods)

    • Food, beverages and tobacco
    • Basic materials
    • Oil
    • Coal, gas and electricity
    • Semi-manufactured goods
    • Finished manufactured goods
    • Others
  • UK exports (services)

    • Transportation
    • Travel
    • Communications
    • Construction
    • Insurance
    • Financial
    • Computer and information
    • Royalties and license fees
    • Other business
    • Personal, cultural and recreational
    • Government
  • The most important destinations for UK exports of goods are the European Union and the United States. The most important destinations for UK exports of services are very similar.
  • Exports of crude oil have reduced between 2001 and 2011.
  • Imports of total finished manufactured goods have increased between 2001 and 2011.
  • Between 2009 and 2011, exports of cars grew faster than imports of cars.
  • The UK's exports of food, beverages and tobacco have increased over the period 2001 to 2011.
  • Exports of total finished manufactured goods have increased over the decade.
  • Gains for consumers from trade
    • Variety - new products from around the world
    • Choice - greater variety of brands to select from
    • Price - lower prices because of the increased competition
    • Quality - competition encourages quality improvements and innovation
  • Gains for producers from trade
    • Larger market - opportunities for economies of scale increase with the greater number of customers
    • Diversification - more than one market gives the benefits of diversification
    • Multinational activity - firms can produce at lowest cost locations, to increase efficiency and cut prices
    • Raw materials and components - can be sourced from the cheapest locations around the world
  • The disadvantages of trade are: workers (especially less-skilled workers) may lose their jobs to lower-wage economies as firms move production overseas, local firms may go out of business in the face of efficient competition from low-cost locations, the movement of goods around the planet will add to pollution, and reliance on imports for some products may impinge on national security.
  • Globalisation

    • Rapid expansion of international trade
    • Developments like the internet and modern communications have assisted the move to internationally recognised brands and the standardisation of products
    • Technological developments like "containerisation" have reduced the cost of transport
    • Multi-national firms have moved their production facilities to new locations as they seek ever lower costs of production
  • The theory of absolute advantage shows that trade has the potential to increase the efficiency with which the world's scarce resources are used. By increasing efficiency, trade can increase world output from the same amount of inputs.
  • Before trade, Australia produces 50 aircraft and 10 tons of bananas, while Belize produces 25 aircraft and 50 tons of bananas. After trade, Australia specialises in producing 100 aircraft and Belize specialises in producing 100 tons of bananas, resulting in a total increase of 25 aircraft and 40 tons of bananas with no increase in factor inputs.
  • Transport costs have been ignored, but the gains from international trade are so big that even after resources are used transporting products around the globe, there is still a gain.
  • Belize to make aircraft. If these products are produced in inefficient locations then the opportunity cost is high. Both countries specialise in what they are best at. All 100 factors are devoted to one product.
  • After-trade output

    Total output has risen by 25 aircraft (100 after trade less 75 before trade) and 40 tons of bananas (100 after less 60 before)
  • There was no increase in factor inputs. Factors of production (scarce resources) have merely been more efficiently used.
  • We have ignored transport costs - pretending they don't exist. The gains from international trade are so big that even after resources are used transporting products around the globe, there is still a gain.
  • There are plentiful examples of how transport costs can be overcome. Fresh flowers flown in from Kenya to the UK and wine from New Zealand are two such examples. Clear evidence that even in the face of transportation costs from halfway round the globe, trade prospers and products can remain competitive.
  • Before-trade output

    Both nations have to produce both goods for themselves. They each will use 50 factors to produce cars and 50 factors to produce oranges.
  • USA

    • Has an absolute advantage in producing both cars and oranges
  • The USA is two times as efficient at producing cars as Mexico. The USA produces 50 cars with 50 inputs of factors of production. In the case of oranges the USA is 2.5 times as efficient. It produces 25 tons of oranges with 50 inputs whereas Mexico produces 10 tons with 50 inputs.
  • As a temporary step on the way to proving comparative advantage, we need to allow the USA to produce only that product in which it has the greatest comparative advantage. In this example that will be oranges. This is because it is 2.5 times as efficient at producing oranges and only 2 times as efficient at producing cars. Therefore Mexico has the least comparative disadvantage in producing cars.
  • We allow the efficient nation (USA) to produce just enough cars to take us back to the original before-trade world output of 75 cars. We reduce their oranges production appropriately to reflect that some factors have been diverted back into car production.
  • Now we have proved that world output has increased. We have the same number of cars and more oranges than we had before trade. Therefore the theory of comparative advantage proves that even when trade occurs between advanced economies and less efficient economies, it is effective in raising world output and improving the use of scarce resources.
  • Both nations will benefit from specialisation and trade.
  • Ruritania does not have a comparative advantage in producing cars.
  • Urbania enjoys an absolute advantage in producing both cars and vegetables.
  • This is an example that can illustrate the theory of comparative advantage.
  • After trade, Ruritania will specialise in producing vegetables.
  • Despite closer links with the EU, the USA remains a major trading partner. In 2012 we had a surplus with the USA in trade in goods.
  • Germany is another very significant trading partner, and it can be inferred that trade with other EU nations has also grown substantially. In the case of Germany we have a continuing deficit in trade in goods.