Chapter 12: International

business and trade

Andrew Gillespie
 Learning Objectives

By the end of this chapter you should be able to:

✓ understand the reasons for trade
✓ understand the benefits of trade
✓ be able to explain protectionism
✓ be able to understand the reasons for and arguments
against protectionism
 Short Answer Questions
1. Explain the link between comparative advantage and opportunity cost.
2. If the opportunity cost ratios for one unit of X are two units of Y in country A
and three units of Y in country X, what are possible terms of trade? Explain
your answer.
3. Does a high or low exchange rate encourage exports? Explain your answer.
4. Distinguish between a tariff and a quota.
5. Explain how a tariff affects consumers.
6. Explain two reasons why governments introduce protectionist measures.
7. What is the difference between a free trade area and a customs union?
8. Explain two benefits of free trade to businesses.
9. Explain two threats of free trade to businesses.
10.Explain the possible benefits of clusters of businesses in the same industry
within a country.
 Essay Questions
1. Discuss the benefits of free trade to a
country and the businesses within it.

2. Should governments introduce protectionist

measures to save jobs within a country?

3. Discuss the effects on different

stakeholders of introducing a tariff.
 Consuming Outside the Production
Possibility Frontier Through Trade

Product A

e
50 p

Exports

10

20 32 60
Product B
Imports
 The Effect of a Tariff

Deadweight
Productive Social burden
Inefficiency loss World
Price +
P2 tariff
TAX
REVEN
UE World
P1 price

Q1 Q3 Q4 Q2