4.1 Benefits of international trade

• Free Trade

  Trade policy that does not restrict imports or exports
• Interdependence

  Mutual reliance between two or more groups
• Specialisation

  Concentration of production on a limited range of goods or services
• Efficiency

  Achieving maximum productivity with minimum wasted effort or expense
• Increased competition

  Rivalry between companies leading to better quality products and services
• Lower prices

  Reduction in the cost of goods and services
• Greater choice

  Wider variety of products or services available
• Acquisition of resources

  Gaining access to new or additional resources
• More foreign exchange earnings

  Increased income from selling goods or services to other countries
• Access to larger markets

  Ability to reach a greater number of potential customers
• Economies of scale

  Cost advantages obtained due to increased production
• More efficient resource allocation

  Improved distribution of resources to maximize output
• More efficient production

  Enhanced manufacturing processes to increase output
• Production Possibility Curve (PPC)

  Graph representing maximum output possibilities for two goods given a set of inputs
• Comparative Advantage

  Ability of a country to produce a good or service at a lower opportunity cost than another country
• Absolute Advantage

  Ability of a country to produce a good more efficiently than another country
• Factor Endowment

  Amount of a resource available in a country
• Opportunity Cost

  The value of the next best alternative foregone
• Terms of Trade

  Ratio at which a country can trade its exports for imports