Trade

What is free trade?

• Trade reflects the impact of

  specialisation and exchange rates

• This is international trade free from

  artificial barriers such as import tariffs,

  quotas and other trade barriers

• This is international trade with artificial barriers such as import tariffs, quotas and other trade barriers

The affects of Comparative Advantage are illustrated in which graphic?

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Where did the UK trade in 2018?

• 49% with the EU, 11% countries with EU trade agreements, 40% with the rest of the world

• 40% with the EU, 11% countries with EU trade agreements, 49% with the rest of the world

• 49% with the EU, 20% countries with EU trade agreements, 31% with the rest of the world

• 52% with the EU, 28% countries with EU trade agreements, 20% with the rest of the world

Why does the UK need an EU trade deal?

• The UK will need an agreement with the EU to gain new tariffs and other trade barriers coming into force after the transition period ends on 31 December 2020.

• A free trade deal aims to encourage trade - usually in goods but sometimes in services too - by making it more expensive.

• The UK will need an agreement with the EU to stop new tariffs and other trade barriers coming into force after the transition period ends on 31 December 2020.

• Trade agreements aim to reinforce quotas - limits on the amount of goods that can be traded.

What happens if UK-EU trade talks fail?

• If negotiators fail to reach a deal, the UK faces the prospect of trading with the EU under the basic rules set by the World Trade Organization (WTO).

• If the UK had to trade under WTO rules, tariffs would be applied to most goods which UK businesses send to the EU. This would make UK goods more expensive and harder to sell in Europe

• If the UK had to trade under WTO rules, tariffs would not be applied to goods which UK businesses send to the EU. This would make UK goods cheaper.

Which of the following deals are expected to take effect at the end of the transition period, according to the Department for International Trade? (2 correct answers)

• Kosovo (£8m of trade in 2018)

• USA (£3bn of trade in 2018)

• Germany (£5bn of trade in 2018)

• Lebanon (£762m in 2018)

Explain Vertical Specialisation.

• Many nations specialize in the same stage of production

• A nation specializes in many stages of the production process

• A nation specializes in particular stages of production

• A nation specializes in particular stages of trading

Key gains from trade are...

• Increased market contestability reduces prices for consumers

• Exploiting economies of scale causing higher unit costs and prices

• Better use of scarce resources from trade in

  sustainable technologies

• Better access to new technologies lifts productivity

Define Allocative efficiency.

• Competition from higher cost import sources drives market prices down and reduces monopoly (supernormal) profits

• Competition from lower cost import sources drives market prices down and reduces oligopoly profits

• Competition from lower cost import sources drives market prices down and reduces monopoly (supernormal) profits

• Competition from lower cost import sources drives market prices down and increases profits

X-inefficiency is...?

• Intense specialisation in markets will provide a discipline on businesses to keep their unit costs under control to remain price competitive

• Intense competition in markets will provide a discipline on businesses to keep their unit costs under control to remain price competitive

• Intense competition in markets will provide a discipline on businesses to keep their unit costs high