trade

Absolute advantage

is an advantage a country have when they can produce a given amount of good or service with far less resources and therefore at an absolute cost advantage over any other country

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than other producers.

International trade

Trade of goods and services that is performed by 2 or more country

Tarrifs

Tax on the price of imported goods to make them more expensive so domestic consumers buy less of them

Subsidies

Grants paid to domestic producers to help reduce their production costs and therefore their prices to below those of overseas firms

Quota

Is a limit on the volume of an imported good allowed into a country

Embargo

Ban on a specific kind of goods and services

Globalisation

A wide term used to describe economic, social, technological, cultural and political changes; that are increasing interdependence and interaction between people, firms, and entire economies across the globe.

Why specialisation?

Economies specialise in the production of the goods and services they are best able to produce because they have the natural, human or man-made resources to do so.

Exports

A surplus of the production of goods and services of a country traded to consumers of other countries.

Imports

Goods and services from overseas that are bought by a country because its firms are less able to produce them with the resources available in the country.

Open economy

A national economy that engages freely in trade with other economies.

Gains from trade

The main advantages to countries from free and open international trade.

Protectionism

The introduction of trade barriers to protect firms and jobs in local economies.

Trade barriers

Tariffs; Subsidies; Quotas; Embargo; Excessive quality standards and bureaucracy.

Tariffs

INDIRECT TAXES on prices of imported goods to make them more expensive to discourage domestic consumers from buying them.

Quotas

A limit on the number of imports allowed into a country each month or year. (restricted supply pushes up their market prices relative to locally produced substitutes).

Excessive quality standards and bureaucracy

The introduction of complex and unreasonable quality control, standards, and licensing requirements to increase costs on exporters and slow down the flow of imports.

Import license

A document issued by the government customs authority approving the importation of certain goods into its territory.

Non-tariff barriers (examples)

Subsidies, quotas, embargo, licensing regulations and arbitrary standards.

Infant industries

also SUNRISE industries; new, small businesses in newly developing industries with the potential to provide many more jobs and incomes in the future.

Dumping

A type of predatory pricing and unfair competition.

Trade liberisation

Removal of barriers to trade between different countries.

self-suffciency

is where individuals, regions or countries rely solely on their own output to meet all their wants and needs. There is no trade.

specialisation

individuals, firms, regions or countries concentrate on a particular product or task.

why do economies specialise and trade?

individuals have different skills. Regions or countries have different factor endowents eg. climate, labour force skills and natural resources. This meanssome individuals, firms, etc are better at makin certain products than others. It makes s…

division of labour

a particular type of specialisation where the production of a good is broken up into many seperate tasks each performed by one person. An early economist, Adam Smith, suggested one worker alone can produce …

why does division of labur raise productivity?

specialisation, or the constant repetition of a task increases the skill and expertise and so increases the output per hour of a worker.

risks of the division of labour

eventually, division of labout may reduce productivity and increase unit costs because unrewarding, repetitive work lowers motivation and prodctivity. Workers begin to take less pride in their work and quality suffers.

benefits of specialisation

increased output so more wants can be satisfied.

risks of specialisation

individuals, firms, regions or countries become interconnected and interdependent, relying on others to supply key products.

interdependence

trading partners become mutually dependent on each other.

how are specialisation, trade and interdependence linked?

specialisation creates surpluses, these surpluses are traded and each party in the exchange becomes dependent on one another.