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Summary international trade
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Summary notes for international trade.
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International tradeInternational trade consists of buying and selling of exports and imports between countries.
Countries specialise because:
Countries have different resources and skills. – this encourages specialisation, in those goods
and services in which they are more efficient.
Why has trade increased:
Consumer expectations – international demand for products.
WTO – promote free trade and remove barriers to trade.
Technological change.
Containerisation – large shipping containers have decreased costs.
Cross-border deregulation (no tariffs and quotas).
Free trade is international trade conducted without the existence of barriers to trade such as tariffs
and quotas. Free trade area is one where there are no tariffs or taxes or quotas on goods/services
from one country entering another.
Advantages:
EOS – reduces costs, increases productive efficiency.
Increases chance for consumers.
Increases competition – improves quality and reduces prices.
Increases chances of transfer of technology.
Encourages innovation.
Leads to dilution of monopoly power in domestic markets.
Disadvantages:
Environmental impact – pollution.
Unemployment in your economy.
Protectionism is protecting your economy by charging taxes and tariffs on foreign imported goods.
Methods:
Tariffs – tax on imported goods.
Quotas – physical limit on the quantity of goods that can be imported.
Non-competitive purchasing by the governments – involves a government buying from
domestic producers.
Embargos – involve complete/partial prohibition of trade with a particular country in order
to isolate it (sanctioning trade).
Reasons why protectionism exists:
Protect domestic industries – however, industries protected by trade barriers lack the
competitive pressure to become efficient.
Protect domestic employment – however consumers are likely to have less choice and pay
higher prices.
To prevent dumping. This is the practice of selling goods at less than cost price by foreign
producers. However, less competition means higher prices.
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