International economics

Table of Contents

1. Topic pack - International economics - introduction
2. Section 3.1 International trade (notes)
   1. Reasons for trade - introduction
   2. Benefits of trade
   3. Absolute advantage
   4. Comparative advantage
   5. Absolute and comparative advantage (video)
   6. World Trade Organisation (WTO)
   7. The role of the WTO
   8. WTO background information
   9. Trade protection - introduction
   10. Introduction to trade policies (video)
   11. Types of protectionism
   12. Tariffs - case study
   13. Imposing a tariff - calculation
   14. Setting a quota - calculation
   15. Giving a subsidy - calculation
   16. Arguments for protectionism
   17. Arguments against protectionism
3. Section 3.1 International trade (questions)
4. Section 3.1 International trade - simulations and activities
5. Section 3.2 Exchange rates (notes)
6. Section 3.2 Exchange rates - questions
7. Section 3.2 Exchange rates - simulations and activities
8. Section 3.3 Balance of payments - notes
9. Section 3.3 Balance of payments - questions
10. Section 3.4 Economic integration - notes
11. Section 3.4 Economic integration - questions
12. Section 3.5 Terms of trade - notes
13. Section 3.5 Terms of trade - questions
14. Print View

Section 3.1 International trade (notes)

In this section we will look at the benefits of trade, absolute and comparative advantage, the World Trade Organisation (WTO), types of trade protection and arguments for and against trade protection.

By the end of this section you should be able to:

• Explain that gains from trade include lower prices for consumers, greater choice for consumers, the ability of producers to benefit from economies of scale, the ability to acquire needed resources, a more efficient allocation of resources, increased competition, and a source of foreign exchange.
• Describe the objectives and functions of the WTO.
• Explain, using a tariff diagram, the effects of imposing a tariff on imported goods on different stakeholders, including domestic producers, foreign producers, consumers and the government.
• Explain, using a diagram, the effects of setting a quota on foreign producers on different stakeholders, including domestic producers, foreign producers, consumers and the government.
• Explain, using a diagram, the effects of giving a subsidy to domestic producers on different stakeholders, including domestic producers, foreign producers, consumers and the government.
• Describe administrative barriers that may be used as a means of protection.
• Evaluate the effect of different types of trade protection.
• Discuss the arguments in favour of trade protection, including the protection of domestic jobs, national security, protection of infant industries, the maintenance of health, safety and environmental standards, anti-dumping and unfair competition, a means of overcoming a balance of payments deficit and a source of government revenue.
• Discuss the arguments against trade protection, including a misallocation of resources, the danger of retaliation and "trade wars", the potential for corruption, increased costs of production due to lack of competition, higher prices for domestic consumers, increased costs of imported factors of production and reduced export competitiveness.

• Explain the theory of absolute advantage.
• Explain, using a diagram, the gains from trade arising from a country's absolute advantage in the production of a good.
• Explain the theory of comparative advantage.
• Describe the sources of comparative advantage, including the differences between countries in factor endowments and the levels of technology.
• Draw a diagram to show comparative advantage.
• Calculate opportunity costs from a set of data in order to identify comparative advantage.
• Draw a diagram to illustrate comparative advantage from a set of data.
• Discuss the real-world relevance and limitations of the theory of comparative advantage, considering factors including the assumptions on which it rests, and the costs and benefits of specialization.
• Calculate from diagrams the effects of imposing a tariff on imported goods on different stakeholders, including domestic producers, foreign producers, consumers and the government.
• Calculate from diagrams the effects of setting a quota on foreign producers on different stakeholders, including domestic producers, foreign producers, consumers and the government.
• Calculate from diagrams the effects of giving a subsidy to domestic producers on different stakeholders, including domestic producers, foreign producers, consumers and the government.