International Trade

• Specialisation - when a firm focuses on the production of a limited scope (range) of goods or services
• Countries efficiently allocate their resources in order to maximize their production output

  • Fertile, moist countries producing crops
  • Middle East countries producing oil
• Advantages of Specialisation

  • Help create innovation of capital for production
  • Low production cost
  • Efficient economy should lead to higher standard of living
  • Surplus products can be traded
  • Can help keep inflation low
• Disadvantages of Specialisation

  • Monopolies may form (oil - OPEC)
  • Not all countries follow same regulations
  • Environment, labour laws
  • Impact of wars on productions
  • Problem if demand for product decreases
  • Reliance of Energy prices for transport
• International Trade - exchange of goods and services between countries

  • Exports - good and services that are produced in one country and then sold to another country
  • Imports - good or services that are brought into a market from a foreign country
• Free Trade - trade without restrictions between countries

  • Can reduce prices by increasing competition
• Multinational Companies (MNC) - businesses that produce products in more than one country
• Protectionism - shielding of a country’s industries from international competition due to globalisation (restrictions to free trade) (refers to government policies that restrict international trade to help domestic industries)

  • Tariffs
  • Quota
  • Embargo
  • Quality Standards
  • Subsidies
• Tariffs - tax imposed on imported goods, usually done to raise the price of imports and encourage consumers to buy domestic products
• Quotas - limits placed on the number of goods that can be imported or exported
• Embargo - the banning of imports or trading with a country
• Quality Standards

  • setting standards that products need to reach in order to be imported
• Subsidies - governments can subsidise local products in order to make them cheaper than imported products
• Reasons for protectionist Policies

  • Protect new or declining industries
  • Protect Strategic Industries
  • Example: merit goods
  • Protect against unfair foreign competition
  • Imported goods from unregulated regions
  • Imported goods subsidised by their local governments
• Globalisation - the interconnecting of markets, trade and investments with few barriers to slow the flow of products and services between nations.

  • the process by which people and goods move easily across borders.
• Factors that encourage Globalisation

  • Removal of Trade Restrictions
  • reduced quotas and tariffs
  • Advanced Communications
  • websites connected consumers directly to sellers around the world (Amazon)
  • Reduced Transportation Cost
  • more efficient shipping vehicles
• Advantages of globalisation

  • Increased competition = lower prices for consumers
  • Firms can relocate to more efficient locations = lower production cost
• Disadvantages of globalisation

  • Economies are more connected = more susceptible to external shocks (Wars, Climate Issues)
  • Government policies can be limited by global policy
  • Unemployment may occur from firms relocating
• Impacts of globalisation

  A) trade

  B) choice

  C) competition

  D) prices

  E) economies

  F) efficient

  G) capital

  H) labour

  I) monopoly

  J) multinationals

  K) structural

  L) shifting

  M) tax

  N) easier

  
• What is trade in goods balance?

  revenue earned from exports minus the expenditure on imports