International Trade and Money summary [Distinction] Questions and Answers

Trade - -A way for countries to exchange goods and resources. Countries can specialise in producing goods where they have a comparative advantage. -Specialisation - -countries can focus on what they are good at producing, baed on the ocmbination of resrouces they have -Allocative efficiency - -created by trade -Comparative advantage - -specialising in goods where countries have a lower opportunity cost, create an increase in global output -Foreign exchange income - -higher export revenue and national income -Consumer choice - -certain resources are not easy to obtain in own countries -Competition - -foreign businesses can compete with our own. higher competitiveness means lower in price -Economies of scale - -specialising in goods, businesses benefit from external economies of scale. lower AC, lower price, higher output -Access to raw materials - -raw materials that are unavailable in their own country -List 7 reasons to protectionism - -1. protect local industries and jobs from foreign competition 2. some export have bad qualities 3. retaliation or anti-dumping, government may subsidise certain products and lower its price in the international market 4. infant industry argument: new starters can't face competition. government invest, comparative advantage in the future. 5. senile industry: industries decline, inefficient. invest and protect 6. higher government revenue. import taxes 7. balance of payment: (X-M) -List 6 methods of protectionism - -1. Tariffs: Taxes on imported goods 2. Quotas: limits on the quantity of imported goods 3. subsidies: government assistance to local producers to lower production cost 4. Manipulate exchange rate: lower currency, higher exports 5. Anti-dumping laws