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Absolute Advantage (the Law of)
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LC Econ Int Trade
Leaving Cert Economics International Trade
| Question | Answer |
|---|---|
| Absolute advantage | A country has an absolute advantage in the production of a good if it can produce that good more cheaply than other countries. |
| Absolute Advantage (the Law of) | This states that each country should specialise in the production of that good in which it has an absolute advantage. |
| Administrative barriers (or 'red tape') | These are obstacles that the government places on importers in order to reduce the amount of imports into the country. |
| Comparative Advantage (the Law of) | This states that a country should specialise in the production of those goods at which it is relatively most efficient, and obtain its other requirements through international trade. |
| Dumping | This is defined as the sale of goods on foreign markets at prices below the cost of producing those goods. |
| Embargo | This is a complete ban on the importation of certain goods. |
| Export subsidy | This is any payment or assistance given by the government to domestic producers of goods and services to promote the sale of those goods and services abroad. |
| Open economy | This is an economy that engages in international trade, that is, one that has exports and imports. |
| Quota | This is a physical limit placed by the government on the amount of a good that can be imported. |
| Tariff (import duty, customs duty, import levy) | This is a tax on goods imported into the country. |
| Terms of trade | A country's 'terms of trade' is the ratio of its export prices to its import prices. It is obtained by using the following formula: Index of export prices X 100 / Index of import prices |
| Explain why international trade is essential for the Irish economy. | ↑ standard of living/↑ wealth • Greater choice of goods • lower prices • Employment and investment opportunities • Economies of Scale • Allows the sale of excess output abroad |
| Discuss measures which the Irish government could take to improve the competitiveness of Irish-based firms in international trade. | Encourage wage restraint • Reduce utility charges • Reduce taxation • Reduce bureaucracy • develop infrastructure • ease credit availability • Give subsidies or grants to firms. |
| How does a government intervene in international trade? | Tariff • Quota • Embargo • Administrative barriers • Export subsidies. |
| Why do governments intervene in international trade? | Protect home firms from competition by 'low-wage' countries • Protect 'infant industries' • Prevent dumping • safeguard employment at home • Allow declining industry to be phased out • Ensure domestic production of vital goods. • Achieve political aims. |
| How valid is the Law of Comparative Advantage? | Ignore transport costs • assumes that there is a constant return to scale • assumes that workers are occupationally mobile • ignores strategic reasons for avoiding complete specialization • assumes free trade exists between countries. |
| Identify the sources of comparative advantage for the Irish Economy. | Climate and land quality • Raw Materials • Educated and skilled workforce • Low corporation tax rate. |
| List the advantages of international trade. | Consumers have a wider choice of goods • allows countries to import raw material and energy resources not available in Ireland • increases competition • allows producers enjoy economies of scale • provides market for excess output • improves relations. |
Created by:
MrFromholz
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