IB Economics: Trade

20 flashcards · Economics · by 5umrr

1. 1. PTA (Preferential Trade Area)

   - lowered trade barriers

2. 2.. FTA (Free Trade Agreement)

   - no barriers between member countries

3. 3. Customs Union

   - no barriers between member countries - collective barrier against

4. 4. Common Market

   - no barriers between member countries - collective barrier against - free movement of factors of production

5. 5. Economic Union

   - no barriers between member countries - collective barrier against - free movement of factors of production - same monetary policy

6. 6. Political Union

   - no barriers between member countries - collective barrier against - free movement of factors of production - same monetary policy - same judicial body, shared sovereignity

7. Tariff

   tax on imported goods and service

8. Subsidy

   government funding to support or protect a certain economic activity

9. Quotas

   Physical limit on imported goods and services - orange box is welfare loss

10. Benefits of free trade

    1. Allows specialization of resources increasing output 2. Increases competition 3. Leads to greater efficiency 4. Leads to lower prices which benefit buyers and keep the cost of living lower 5. May induce domestic firms to grow and achieve Economies of Scale 6. Allows domestic firms to import exactly what they need 7. Enables technology and ideas to spread faster 8. Stimulates faster growth 9. Allows higher savings 10. Presents consumers with more options

11. Role of WTO

    1. a forum for negotiation to liberalize trade. 2. uniform/consistent rule for trade. 3. a mechanism for dispute settlement.

12. Arguments for trade protection

    -protect domestic jobs -national security -protect infant industry -maintain health, safety and environmental standards -antidumping + unfair competition -overcome BoP deficit -source of govt revenue

13. Arguments against trade protection

    -no benefits of free trade -misallocation of resources -danger of trade war/retaliation -potential corruption -increased CoP due to no economies of scale/comparative advantage + imported FoP -reduced export competitiveness

14. Depreciation

    decrease in value of a currency relative to another in a free floating exchange rate system

15. Apreciation

    increase in value of a currency relative to another in a free floating exchange rate system

16. Free floating exchange rate system

    system where governments and central banks do not participate in the market for foreign exchange, only market forces determine the exchange rate

17. Pegged/fixed exchange rate system

    exists when a country fixes the value of its currency relative to a reference currency eg. Ecuador (ECS) -> US Denmark (krone) -> EU

18. Managed exchange rate system

    exchange rates are determined mainly through market forces, but with periodic intervention by central banks aiming to smooth out abrupt fluctuations. Intervention takes mainly the form of the buying and selling of official reserves. eg. Philippines (peso) -> US

19. Balance of Payments

    a measure of the total flow of money into or out of a country

20. Levels of trade agreement