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International Trade and
Protectionism
Definition
Why do countries trade
Patterns of trade
Advantages/ Disadvantages
Theories
Trade protectionism
LDC trade vs MDC trade
Diagrams




Definitions:
o Trade: Trade is the exchange of goods and services between two or more parties.
o Free Trade: Free Trade is when there are no artificial…

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Why do countries Trade?
o To gain goods and services that your countries is not able to produce or produce
well.
o Trade to gain natural resources, technology, skills which are not evenly distributed in
the world.
o Factors of Production aren't mobile internationally

o International specialisation and division of…

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Trade Theories:
Theory Diagram

Absolute advantage is an
Absolute advantage in the production of
advantage a good enjoyed by one country
over and above another when
it uses fewer resources to
produce that good than the
other country does. Output
levels cannot be improved by
any other allocation of
resources…

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Forms of Protectionism:
o Quantity control: Trade embargos, tariffs, quantitative restrictions, voluntary
export constraints, quotas.
o Fiscal control: Subsidies to regions ­ exports, public corporations.
o Administrative control: Health and safety controls, marks of orgin, technical
standards, customs procedures, environmental measures.

Terms of Protectionism:
o Dumping: A firm or industry's…

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time, or to reduce competition by destroying domestic producers ability to sell.
Therefore gov't can put tariffs in place to bring the cost of international firms goods
to the level it should be at.

Advantages/ Disadvantages of Trade and Protectionism:
Advantages Disadvantages

Trade o Specialisation occurs in countries o Removes…

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Protectionism o Stimulates geriatric economies o Creates trade retaliation/ trade

o Good for agriculture
wars (banana wars 90s)

o Less consumer choice
o Stops exploitation of labour
o Less competition -> higher
o Develops countries export base
prices-> inflation

o Sense of national identity o Widen inequality gap.

o Reduces…

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o Raising prices by faming cartels ­ in the SR quota restrictions may be imposed, decrease in
demand.
o Stabilising prices by operating a buffer stock scheme- in reality buffer stock schemes aren't
easy to operate, goods are perishable and costs are high.




Long term problems

o Inefficient agricultural practices…

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o Import substitution policies: protectionism.

o Export promotion/ open door policy

o Sustainable trade.




Diagrams:
Diagram
Trade creation




Trade diversion




Monopoly

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Economies of Scale




PPF




J-Curve

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