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International trade (SL)

Section4 of the syllabus

Mark Ingrey

on 12 October 2012

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Transcript of International trade (SL)

Causes of an improvement Free Trade
& Protectionism Free trade is when the movement of goods and services between countries is allowed to take place without any restriction. There are no barriers to trade imposed by governments and/or international organisations. Protectionism is the opposite of free trade. It is when the movement of goods and services between countries is restricted in some way. The restriction may be partial or complete. Types of protectionism For protectionism Tariffs Quotas Subsidies Voluntary Export Restraints (VER's) Administrative obstacles Health and Safety standards Environmental standards A tax that is imposed only upon goods that are imported into a country. The same good or service produced in the country will not be subject to the tariff. A subsidy is a payment by the government, given to domestic firms for each unit of a good or service that they produce. It reduces the costs of production for the domestic producers. A quota is a limit on the quantity or value of a good or service that the government allows to be imported into the country. VER's are agreements between two trading countries, where the exporting country willingly agrees to put a limit on the quantity or value of a good or service being exported. Administrative obstacles are where a country makes it more difficult to import goods into the country by increasing the bureaucracy involved. These are similar to administrative barriers, but the importing country imposes rules and regulations that goods and services must meet in order to be sold in the domestic market. These rules are specifically to ensure the health and safety of the population, for example banning the use of lead based paint in children's toys. These are similar to health and safety standards, but relate specifically to environmental issues, such as the amount of pollution created by vehicules. Protect infant industries Protection of domestic employment Source of government revenue Balance of payments deficits National security (strategic reasons) Anti-dumping and unfair competition Economic Integration World Trade Organisation Balance of payments Exchange rates Reasons for trade Terms of trade International Economics Lower prices for consumers
Greater variety and quality of goods
Gaining of economies of scale
Access to different resources
Increased competition
Source of foreign exchange
Political reasons Globalization Trading blocs Free trade areas Customs unions Common markets Complete integration Economic and monetary union Current Account Capital Account = Balance of payments ( Current account > Capital account ) ( Capital account < Current account ) Current Account Balance of trade
Invisible balance
Net Income flows Methods of correction Changes in exchange rates
Expenditure-reducing policies
Expenditure-switching policies
Supply-side policies Current Account Surplus Current Account Surplus Weighted index of average export prices
Weighted index of average import prices Terms of Trade x 100 Export prices rise relative to import prices.

The same quantity of exports now buy a greater quantity of imports. Improvement Import prices rise relative to export prices.

The same quantity of exports now buy a smaller quantity of imports. Deterioration Increased demand for exports Domestic inflation Inelastic demand Elastic demand Improving current account balance Increased export revenue Decreased export revenue Worsening current account balance Improving current account balance Increased export revenue Fixed exchange rates The value of the currency is fixed (or 'pegged') against the value of another currency. Floating exchange rates The value of the currency is constantly changes in response to shifts in the supply of or demand for the currency Managed exchange rates This is where the government intervenes in a floating exchange rate system to reduce the volatility or keep it within a band Depreciation
Appreciation Devaluation
Revaluation Trade flows (imports and exports)
Interest rate changes (capital flows)
Using foreign currency reserves Factors affecting exchange rates Example Decrease in Swiss interest rate Decrease in Swiss interest rate relative to other countries.
Less attractive to save in Switzerland - need chf to do so, therefore decrease in demand for chf to save in Switzerland.
More attractive to save elsewhere - need other currencies to do so, therefore increase in supply of chf in order to buy other currencies. = Depreciation Remember
1chf : $1 to 1.25chf : $1
1chf : $1 to 1chf : $0.80 Globalisation involves the spread of economic, social and cultural ideas across the world, and the growing uniformity between different places that results from this spread. it has come about as a result of the increased integration of national economies through the rapid growth of international trade, investment and capital flows, made possible by rapid improvements in technology. (IBO) What has been the impact of globalization on different stakeholder groups and countries at different levels of development? (pro`s and cons of globalization) Aims of WTO Maintain standards (health and safety and environmental) Against protectionism Higher prices for consumers Inefficiency Retaliation and trade wars Less competitive exports Misallocation of resources Welfare loss Lack of competition Increased cost of imported raw materials
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