Opportunities and Challenges of Trade

Why might a business choose to trade internationally if its domestic market is saturated?

• To reduce its global market share

• To increase sales in new markets

• To avoid government subsidies

• To increase production costs

Answer explanation

A business may choose to trade internationally to increase sales in new markets, especially when its domestic market is saturated. This allows for growth opportunities and diversification of revenue sources.

What is a global brand?

• A brand that only operates in its home country

• A brand that is successful in many countries around the world

• A brand that focuses solely on local markets

• A brand that avoids international trade

Answer explanation

A global brand is defined as one that is successful in many countries around the world, indicating its ability to appeal to diverse markets and consumers, unlike brands that focus only on local or home markets.

How can international trade help a business spread risk?

• By relying on a single market

• By diversifying into multiple markets

• By focusing only on domestic sales

• By ignoring consumer tastes

Answer explanation

International trade helps a business spread risk by diversifying into multiple markets. This reduces dependence on a single market, allowing the business to mitigate losses if one market underperforms.

What is meant by 'economies of scale'?

• Increasing unit costs as output rises

• Falling unit costs of production as output rises

• Increasing total costs with no change in unit costs

• Decreasing total costs with increasing output

Answer explanation

'Economies of scale' refers to the phenomenon where the cost per unit of production decreases as the volume of output increases, making 'Falling unit costs of production as output rises' the correct choice.

Which of the following is a benefit of bulk buying?

• Increased unit costs

• Discounts from suppliers

• Higher marketing expenses

• Reduced sales

Answer explanation

Bulk buying often leads to discounts from suppliers due to the larger quantities purchased, which reduces the overall cost per unit. This is a key benefit, unlike increased unit costs or higher marketing expenses.

What is a potential challenge of international trade?

• Increased job opportunities in all countries

• No impact on the natural environment

• International trade regulations

• Guaranteed profit in all markets

Answer explanation

International trade regulations can pose challenges such as tariffs, quotas, and compliance requirements, which may hinder trade efficiency and increase costs, unlike the other options that suggest positive outcomes.

What is 'protectionism'?

• Free trade without restrictions

• Government-imposed restrictions on trade

• Encouragement of international trade

• Elimination of tariffs and quotas

Answer explanation

Protectionism refers to government-imposed restrictions on trade, such as tariffs and quotas, to protect domestic industries from foreign competition. This contrasts with free trade, which promotes unrestricted international trade.

Which of the following is an example of a free trade area?

• European Union

• NAFTA (North America Free Trade Agreement)

• CARICOM

• ASEAN

Answer explanation

NAFTA (North America Free Trade Agreement) is a free trade area that promotes trade between the U.S., Canada, and Mexico by reducing tariffs. The European Union is a customs union, while CARICOM and ASEAN are regional organizations with broader goals.

What is a customs union?

• A free trade area with no external tariffs

• A free trade area with a common external tariff

• A single market with free movement of labour

• A trade agreement with no regulations

Answer explanation

A customs union is a type of trade agreement where member countries eliminate tariffs on trade between themselves and adopt a common external tariff on imports from non-member countries, making the correct choice a free trade area with a common external tariff.

How can expanding production overseas reduce operational costs?

• By increasing land and labour costs

• By reducing land and labour costs

• By increasing marketing expenses

• By reducing sales revenue

Answer explanation

Expanding production overseas can reduce operational costs primarily by lowering land and labour costs, as many countries offer cheaper resources and wages compared to domestic markets.