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International Trade Notes

Economics Notes > Macroeconomics Notes

This is an extract of our International Trade document, which we sell as part of our Macroeconomics Notes collection written by the top tier of Wallington High School For Girls students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Macroeconomics Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

INTERNATIONAL TRADE Benefits of International Specialisation:


Microeconomic Benefits:
# For Firms:
- 'Practise makes perfect'
- Economies of scale
? Greater productive efficiency
? Increased global output
- Larger range of suppliers
? Lower costs of raw materials + components
- Larger markets
? Larger potential revenues + profits
- Rapid spread of ideas, innovations & technologies
? Dynamic benefits


For Consumers:
- Greater competition for their custom/ business
? Lower prices
? Improved quality
? Greater variety/ choice of products
? Greater allocative efficiency

Macroeconomic Benefits:
- Export revenue = injection into circular flow (J) ? multiplier effect ? increased GDP
- Supply side improvements - international trade will make firms improve their efficiency to compete domestically and internationally

Basis of Specialisation:

1. Absolute Advantage: a country can produce a good/ service using fewer resources than other economies OR

2. Comparative Advantage: a country can produce a good/ service at a lower o.c. than other economies

International Trade and Barriers:


Free Trade: the exchange of products (for products or currency) across national frontiers without restrictions or special taxes


Protectionism: the opposition of free trade - deliberate restrictions placed upon the movement of goods and services between countries
# Arguments against:
? Stops the operation of comparative advantage ? less specialisation/ greater productive inefficiency
? World output will | and choice of products will be more restricted. Quality is lower +
prices will be | ? reduction in consumer welfare/ greater allocative inefficiency
# Arguments for:
? Protect particular industries

* Sunrise/ Infant Industries: new firms

* Sunset/ Senile: well-established but declining in competitive business due to newer firms

* Strategic Industries: industries key to the economy's survival e.g. armaments and agriculture

* From unfair competition from overseas:

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