International Trade
Overview
No country produces everything it consumes, and no country consumes only what it produces. Coffee grown in one climate reaches breakfast tables on the other side of the world; a country with no oil fields still fills its cars with petrol. International trade lets countries specialise in what they are relatively best at producing and exchange the rest, and the economic case for this, comparative advantage, is one of the oldest and most powerful ideas in the subject.
In this lesson you will learn why countries trade, why governments sometimes restrict trade instead, the tools they use to do it, and how trading blocs and the World Trade Organization shape the pattern of world trade today.
Objectives
- Advantages and disadvantages of free trade, including lower prices and increased choice for consumers, lower input costs, wider markets for businesses, foreign competition harming domestic businesses, increasing unemployment
- Reasons for protection: prevent dumping, protect employment, protecting infant industries, to gain tariff revenue, protect consumers from unsafe products, reducing current account deficits, retaliation
- Methods of protection: tariffs, quotas, subsidies, advantages and disadvantages of each method of protection, supply and demand diagrams to show tariffs, quotas and subsidies
- Modern trading blocs: impact of trading blocs on member and non-member countries, examples of trading blocs
- Role of the World Trade Organization (WTO): actions by the WTO
- Trade patterns of developed and developing countries
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Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on International Trade. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- A country has a comparative advantage in a good if it can produce that good: A) In larger quantities than any other country B) At a lower opportunity cost than another country C) Using more resources than another country D) Only for domestic consumption Answer: B
- Which of the following is a method used to protect a domestic industry from foreign competition? A) Comparative advantage B) A tariff C) Free trade D) Trade liberalisation Answer: B
- Unlike a tariff, a quota: A) Raises significant revenue for the government B) Sets a physical limit on the quantity of imports rather than taxing them C) Always lowers domestic prices D) Cannot affect the quantity of imports Answer: B
- A customs union differs from a free trade area because a customs union: A) Removes all trade barriers between members only B) Also sets a common external tariff on non-member countries C) Allows completely free movement of labour and capital D) Uses a single shared currency Answer: B
- Which organization's main role is to negotiate the reduction of trade barriers and settle trade disputes between countries worldwide? A) The World Trade Organization B) A regional trading bloc C) A central bank D) A multinational corporation Answer: A
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Recommended Books
Further learning from open sources
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Textbook section
Arguments in Support of Restricting Imports
Explain and analyze various arguments that are in support of restricting imports, including the infant industry argument, the anti-dumping argument, the environmental protection argument, the unsafe consumer products argument, and the national interest argument
"Principles of Economics 2e: Arguments in Support of Restricting Imports" by OpenStax, OpenStax, Rice University, licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). Source: https://openstax.org/books/principles-economics-2e/pages/34-3-arguments-in-support-of-restricting-imports. Access for free at https://openstax.org/books/principles-economics-2e/pages/1-introduction
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Textbook section
How Governments Enact Trade Policy: Globally, Regionally, and Nationally
Explain the origin and role of the World Trade Organization (WTO) and General Agreement on Tariffs and Trade (GATT)
"Principles of Economics 2e: How Governments Enact Trade Policy: Globally, Regionally, and Nationally" by OpenStax, OpenStax, Rice University, licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). Source: https://openstax.org/books/principles-economics-2e/pages/34-4-how-governments-enact-trade-policy-globally-regionally-and-nationally. Access for free at https://openstax.org/books/principles-economics-2e/pages/1-introduction
Published by other organisations under open licences, credited as they ask. Links open their websites.
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