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Chapter 14 Int'l Trade Theory and Policies - Coggle Diagram
Chapter 14 Int'l Trade Theory and Policies
Principle of Comparative Advantage
Limitiations
Transport costs ignored
Reluctance to be totally dependent on trade
Sources of
Differences in factor endowments
Differences in technological capabilities
Dynamic CA
Changes in QUANTITY of FOP
Changes in QUALITY of FOP
Physical infrastructure
Training and education
Technology
Expanding industries
Effects of free trade and specialisation
On households
Advantages
Can consume more, wider variety of goods at lower prices
Increase in quality of products
Disadvantages
Higher product prices
Uncertainty in quality control of goods
On domestic firms
Advantages
Lower costs and rising revenue leading to greater profits
Disadvantages
Increased competition
On the economy
Advantages
Trade as an engine of growth
Higher domestic employment
Lower inflation
Disadvantages
Unemployment
Structural - more prone to economic crises of other countries
Cyclical - decline in certain domestic industries
Inflation
Cost-push - greater reliance on imported raw materials
Demand-pull - rise in X, rise in AD
Widening income disparities
Environmental degradation
Protectionism
Trade barriers
Tariff measures
Impact on I --> Current Acc of BOP
Impact on economy (AS, AD, RNY, GPL)
Consumer goods
Raw materials
Impact on C --> dependent on PED
Impact of allocative efficiency
Non-tariff measures
Subsidies
reduce I
Change country from importer to net exporter
may have long-term strain on govt budget
trading partner may retaliate with tariffs