IB Economics: International Trade

Han Zhang
Mind Map by Han Zhang, updated more than 1 year ago


Some more notes

Resource summary

IB Economics: International Trade
1 Reason for Trade
1.1 Gains
1.1.1 Specialisation and comparative advantage
1.1.2 Increased choice
1.1.3 Lowe costs/ prices
1.1.4 Competition
1.1.5 Economics of Scale
1.1.6 Increased efficiency in the allocation of resources
1.1.7 Source of foreign exchange (import)
1.2 World Trade Organization (WTO)
1.2.1 Deals with global "rules" for trading, while aiming for reduction in protectionism and promotion of free trade
1.2.2 Functionality Execute and administer agreements Provide a forum for trade negotiation Rule on trade disputes Monitor trade policies Provide assistance to ELDCs on trade issues
2 Free Trade/ Protectionism
2.1 Free trade
2.1.1 the international exchange of goods and services without any artificial barriers to trade
2.1.2 Comparative advantage Specialisation -> Efficiency use of resources
2.1.3 Benefits to producers and consumers Lower costs and prices
2.1.4 Decrease prices in importing
2.1.5 Competitiveness and efficiency
2.1.6 Market > Government
2.1.7 No retaliation from barriers
2.1.8 Allocation of resources
2.2 Protectionism
2.2.1 Infant industry arguments Underdeveloped economies can't compete with Developed economies
2.2.2 Anti-dumping Pricing below cost to gain competitiveness (subsidy)
2.2.3 Protecting employment
2.2.4 Balance of Payments Positive current account
2.2.5 Externalities and demerit goods Education/ healthcare underprovision
2.2.6 Strategic/ security reasons
2.2.7 Unrealistic assumptions of comparative advantages
2.3 Advantages of one is disadvantage or the other
2.3.1 Quotas a physical limit on imports in terms of volume or value Similar effect as tariff Instead of government revenue foreign importing firms with quota license Buying goods at world price and selling for higher Global misallocation
2.4 Tariff
2.4.1 Tax on imports
2.4.2 Boosts Domestic firms
2.4.3 Raises Government revenue
2.4.4 Effectiveness depends on elasticities of D and S
2.4.5 Deadweight welfare loss
2.4.6 Global misallocation
2.5 Subsidies
2.5.1 artificially lower the costs of producer thus reducing price of G & S
2.5.2 Less imports more domestic supply
2.5.3 Negative effect on government budget
2.5.4 Global misallocation
3 Economics Integration
3.1 Globalization
3.1.1 the geographical dispersion of industrial and service activities and the cross-border networking of companies
3.2 Preferential trade agreement
3.2.1 Bilateral (2) or Multilateral (many)
3.2.2 Partner > low cost producers
3.3 Trading Blocs
3.3.1 Free Trade Area When countries form a trading area within which they move goods and services freely but each individual country retains its own barriers to outside countries
3.3.2 Custom Union Individual country trade barriers no longer exist and there is a unified trade policy
3.3.3 Common Market A customs union with the free movement of factors of production as well Reluctance to surrender both economic and political sovereignty stop further intergration
3.4 Monetary Union
3.4.1 a common market with a common currency and a common central bank
3.4.2 Advantages More efficient resource allocation Increased quality of life/ real income Easier to trade Price transparency Coordinated macro policy with lower inflation and interest rates Increase inward investment Reduced Exchange Rate uncertainty between members
3.4.3 Disadvantages Increased competitive costs Lower levels of integration, firms exploit differences in employment and environmental legislation Loos of economic sovereignty (Monetary) "One size fits all" monetary policy Asymmetric shocks
4 Exchange Rates
4.1 the price of one currency in terms of another
4.2 Types of ER
4.2.1 Floating Demand Demand for exports Inflows of investments Speculative buying Central Bank buying currency Supply Demand for imports Outflows of investments Speculative selling Central banks selling currency Factors of Change Monetary Interest rates and investors Fiscal Investor confidence Growth AD on imports/ exports Inflation Purchasing Power Parity Theory ER will adjust in long run due to PPP Trade Balance Trade surplus ER rise, Trade deficit ER fall Speculation Huge impact Depreciates and Appreciates
4.2.2 Managed Government intervention Set limit to achieve macro objectives
4.2.3 Fixed Government intervention Use IR and Currency reserves Devalues and Revalues
4.3 Common Currencies and Monetary Integration
4.3.1 Adv. Float (Opposite for Dis. Fixed) No currency reserves Monetary policy free to target domestic goals Automatic balance of payments adjustment Reduced risk of speculation
4.3.2 Adv. Fixed (Opposite for Dis. Float) Inflation discipline Certainty through currency stability increased trade Reduced costs of currency hedging for firms
4.3.3 Strong currency Adv Reduced import costs Inflationary discipline Improvement in the terms of trade Increased real purchasing power abroad Dis Increased import penetration Exports struggle to maintain competitiveness Reduces economics growth Asymmetrical effects on regions and sectors
5 Balance of Payment
5.1 An account of a country's financial transaction with the rest of the world
5.2 Current Account
5.2.1 the value of trade in G&S and net investment income and transfers
5.2.2 Balance of trade in G&S; Income; Current transfer
5.2.3 Current account deficit Export < Import Downward pressure on ER Long term risks Capital Flight (capital transfer over sea) Inflationary, might need IR rise Opportunity cost of debt funding Effects on credit rating
5.2.4 Current account surplus Export > Import Upward pressure on ER Long term risks Risks of protectionist measures for deficit countries Upward pressure on the currency
5.3 Capital and financial account
5.3.1 Capital flows (shares, government debt and foreign investment)
5.3.2 Capital account: Capital transfer; Transactions in non-produced, non-financial assets
5.3.3 Financial account: Direct investment, Portfolio investment, Reserve assets
Show full summary Hide full summary


Luisa Mandacaru
IB Biology Topic 4 Genetics (SL)
French Oral Phrases
Gas exchange
IB Biology Option E
Diversite Culturelle
All My Sons
Alyssa B
Lean Production and Quality Management
Nathalia Maria Veit
Theory of Knowledge Essay Preparation
Derek Cumberbatch
IB Chem Flashcards
j. stu
IB Bio - Mitosis Quiz
j. stu