International Trade (Edexcel IGCSE Economics): Flashcards

Lower input costs such as raw materials and labour allow output to increase and production costs to fall.

Greater choice from a wider variety of goods and services improves the standard of living.

Protectionism is the use of government measures to limit free trade and protect domestic markets and employment from foreign competition.

A current account deficit occurs when a country's imports are greater than its exports, so more money leaves the country than enters.

Protectionism can take the form of import tariffs, export subsidies and the use of quotas or embargoes.

Free trade aims to maximise global output through specialisation at a national level.

Governments prevent dumping because it is anti-competitive and can harm domestic industries.

Cheap imports can cause structural unemployment by shrinking domestic industries, so governments use protectionism to protect jobs.

New infant industries are unlikely to succeed at start-up against global competition, so they are supported until established.

Froot Loops cereal is banned in France, Austria, Norway and Finland because of its artificial colourings.

Retaliation is when a country responds to another's protectionism with its own, e.g. China imposing tariffs on US soybeans after US steel tariffs.

True.

Tariffs generate government revenue, with the US receiving over $100 billion in tariffs in 2022.

True.

Free trade encourages countries to specialise to maximise global output, such as Germany specialising in highly technical capital goods.

Protectionism can protect consumers by banning products that are unsafe or pose potential health risks.

If trading partners retaliate against protectionism, trade is reduced and consumers can be left worse off.

A tariff is a tax on imported goods and services, also known as a customs duty.

A tariff increases the price of imported goods and services.

A tariff raises import prices, so consumers switch from imports to domestically produced goods, increasing domestic market share.

A tariff shifts the supply curve left (S1 to S2), raising price from P1 to P2 and reducing quantity from Q1 to Q2.

Tariffs protect infant industries, raise government tax revenue and reduce dumping by foreign businesses.

Tariffs raise the cost of imported raw materials, reduce competition (encouraging inefficiency) and reduce consumer choice.

Tariffs reduce dumping because foreign businesses cannot sell below the market price.

False.

A tariff is a tax on imports that raises their price; a physical limit on quantity is a quota.

True.

A tariff lets less efficient domestic firms continue producing at the expense of more efficient international firms.

Tariffs can protect infant industries until they are able to compete globally.

Tariffs increase government tax revenue, which can fund essential services such as healthcare.

It is the domestic importer, not the foreign exporter, who pays the tariff when goods cross the border.

A quota is a physical limit on the quantity of imports allowed into a country.

A quota is usually set below the free market level in order to restrict imports.

By limiting cheaper imports, a quota creates shortages which raise the market price.

In June 2022, the UK extended its quota on steel imports for two years to protect employment in the domestic steel industry.

A quota reduces supply, shifting the curve S1 to S2, raising price from P1 to P2 and reducing quantity from Q1 to Q2.

Quotas can reduce unemployment, encourage new business start-ups, be easily changed, and are seen as less confrontational than tariffs.

Quotas cause higher prices, may create tension with trading partners, and can make domestic firms more inefficient.

Under a quota, foreign exporters can still sell a limited amount of goods at a higher price in the domestic market.

False.

A quota is a physical limit on the quantity of imports; a tax on imports is a tariff.

True.

A quota limits the quantity of imports but, unlike a tariff, it raises no government tax revenue.

As cheaper imports are limited by a quota, some domestic firms benefit because they can supply more.

Because quotas limit supply, domestic firms may become more inefficient as competition falls.

A subsidy is an amount of money paid to a firm by the government for each unit produced.

International competitiveness is the ability of a country's firms to sell their goods and services successfully against foreign rivals, often by offering lower prices.

A subsidy lowers the cost of production for domestic firms, allowing them to increase output and lower prices.

When goods become cheaper and more competitive internationally, the level of exports increases.

A subsidy is the method of protectionism used to reduce the price of exports.

A subsidy causes an increase in supply, leading to a lower equilibrium price and a higher equilibrium quantity.

Subsidies create a cost because the government must pay the amount of the subsidy, and there is an opportunity cost associated with every subsidy provided.

False.

A subsidy lowers the cost of production for domestic firms so they can lower prices; it is a tariff that raises the price of imports.

True.

The increased output encouraged by a subsidy may result in greater domestic employment.

False.

A subsidy makes it harder for foreign producers to compete, as domestic firms benefit from lower costs and prices.

At the original price, a subsidy creates a condition of excess supply, which pushes the market price down.

Standards of living improve for consumers because subsidies lead to lower prices, so their income goes further.

A trading bloc is a group of countries who come together and agree to reduce or eliminate any barriers to trade that exist between them.

A free trade area is a bloc in which countries agree to abolish trade barriers between themselves but maintain their own restrictions with other countries.

A customs union is an agreement in which members trade tariff free with each other and agree on a common external tariff on imports from all non-bloc countries.

A monetary union has all the benefits of a customs union and common market, plus a common central bank that issues a common currency and controls monetary policy.

Trade diversion occurs when a trade agreement redirects trade away from a more efficient country outside the bloc towards a less efficient member state.

In a common market, the four factors of production can move unrestricted between member countries.

ASEAN is a free trade area, which is less integrated than the EU as it does not allow free movement of people or capital.

The United States-Mexico-Canada Agreement (USMCA) replaced NAFTA in 2020.

The World Trade Organisation (WTO) was established in 1995 to promote free trade, which it believes is the best way to raise global living standards.

The WTO acts as an adjudicating body, running a hearing and making a judgement when a member believes a trading partner has violated a trade agreement.

True.

The European Union is a common market, allowing free movement of goods, services, labour and capital between members.

False.

Regional trade agreements can conflict with the WTO because they may divert trade and impose common trade barriers on non-members, which is a form of protectionism.

External tariffs imposed on countries outside a trading bloc may provoke retaliation from those countries.

A drawback of joining a trading bloc for member states is a loss of sovereignty, as nations give up their autonomy.

Trade liberalisation is the process of rolling back the barriers to free trade, such as removing tariffs, and is a factor behind rising global trade.

Primary commodities are raw materials or unprocessed goods, such as copper, that many developing countries are heavily dependent on exporting.

Over-specialisation is when a country relies on exporting a narrow range of products, making it vulnerable to price volatility.

There has been a significant overall increase in global trade in goods from 1950 to 2022.

Factors include improved transportation, technological advancements, the formation of trading blocs, and trade liberalisation.

China is now the world's largest manufacturing economy and leading exporter.

Many developing countries are overly dependent on exporting a narrow range of primary commodities, making them vulnerable to price volatility.

Since the pandemic's supply chain disruptions, many countries have spread their dependence on imports over a wider range of countries to reduce risk.

True.

Emerging economies such as China, Brazil, India and Thailand are now overtaking nations that previously held dominance in trade volume.

False.

Patterns of trade have changed over time, as the volume and composition of trade shifts when countries develop.

As countries transition from developing to more developed economies, the volume and composition of trade changes.

Most of China's exports are manufactured goods, such as electronics, traded with the United States, ASEAN and the EU.