Ch 23 - Why do countries trade?

Producers

Producers

________ can buy less expensive raw materials and semi manufactured goods.

Greater choice

________: consumers have access to domestic and international products.

International trade

________: exchange of goods and services between countries.

Absolute advantage

________: ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time.

International trade

exchange of goods and services between countries

Greater choice

consumers have access to domestic and international products

Absolute advantage

ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time

Comparative advantage

which goods should a country produce for export and which should it import

Comparative advantage

which goods should a country produce for export and which should it import

Absolute advantage

ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time

Economies of scale

• Size of market increases

• Demand increases

• Production decreases

Dumping

occurs when imports are sold at prices below their marginal costs

specialisation

each worker, or each producer, is given a specialist role, they are likely to become efficient contributors to the overall process of production, and to the finished product

Factors of Comparative advantage

A country has this in the production of a good if it can produce the good at a lower opportunity cost than another country.

Factors of absolute advantage

A country has this in the production of a good if it can produce it using fewer resources than another country.

Limitations to production

→ based on a number of assumptions

→ theories can limit the application of theory in real life

Trade protectionism

policies aimed at restricting the flow of imports into a country and creating an artificial advantage to exporting firms

Tariff

tax on imports aimed at increase the costs of production for foreign firms. These raise the domestic price and domestic production, so that less in imported and consumed