International Trade & Globalisation
International trade examines how specialisation and exchange between economies affect output, prices, and living standards. This guide covers the law of comparative advantage, terms of trade, and why governments sometimes impose tariffs, quotas, or subsidies to protect domestic industries.
- Absolute Advantage
- When a country can produce more of a good than another country using the same amount of resources.
- Comparative Advantage
- When a country can produce a good at a lower opportunity cost than another country.
- Globalisation
- The growing integration and interdependence of the world's economies, cultures, and populations.
International Trade & Globalisation: Supply, Demand, Elasticity & Welfare Shift Lab
Trigger a market shock or adjust price elasticity below to watch the curves shift and inspect the new equilibrium price, output, and welfare triangles.
Baseline Free-Market Equilibrium
Market clears at P₁, Q₁ where Quantity Demanded equals Quantity Supplied (allocative efficiency; social welfare is maximised).
Key Concepts & Exam Definitions (5)
- Absolute Advantage
- When a country can produce more of a good than another country using the same amount of resources.
- Comparative Advantage
- When a country can produce a good at a lower opportunity cost than another country.
- Globalisation
- The growing integration and interdependence of the world's economies, cultures, and populations.
- Tariff
- A tax levied on imported goods to reduce their demand and protect domestic producers.
- Trading Blocs
- Groups of countries that sign agreements to reduce or eliminate trade barriers between themselves (e.g., the EU, NAFTA).
Quick-Fire Flashcards (5)
Click any card to check the answer, then mark it as Known to track your progress.
What is a quota?
Define opportunity cost in trade.
State two features of globalisation.
What is the infant industry argument?
What is a customs union?
Exam-Style Questions & Mark Schemes (3)
Write or think through your answer first, then click Check Mark Scheme to see the exact points examiners award marks for.
- Q1
Explain the difference between absolute and comparative advantage.
Click “Check Mark Scheme” to compare your answer, Absolute advantage refers to being more efficient at producing a good overall (using fewer resources). Comparative advantage refers to producing a good at a lower opportunity cost than a trading partner.
- Q2
Discuss two negative impacts of protectionism.
Click “Check Mark Scheme” to compare your answer, 1. Higher prices for domestic consumers due to reduced competition. 2. Potential retaliation from trading partners, leading to trade wars and reduced export opportunities.
- Q3
How do trading blocs benefit member countries?
Click “Check Mark Scheme” to compare your answer, They remove trade barriers, creating larger markets. This allows firms to benefit from economies of scale, increases competition (improving efficiency), and gives consumers lower prices and more choice.
Common Exam Questions (3)
What is the theory of comparative advantage?
Comparative advantage states that a country should specialise in producing and exporting goods and services that it can produce at a lower opportunity cost than its trading partners, increasing total world output when countries trade.
What is protectionism?
Protectionism is the use of government policies, such as import tariffs, quotas, embargoes, or domestic subsidies, to restrict international trade and shield domestic producers from foreign competition.
How does a tariff work?
A tariff is an indirect tax levied on imported goods entering a country. It raises the domestic price of imports, reducing import volume and expanding domestic production, while generating tax revenue for the government and reducing consumer surplus.
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