economic issues affecting international trade
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0551handout-tradingcards.pdf | |
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trading_game.docx | |
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income_and_countries.pptx | |
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economic_issues_affecting_international_trade_question_sheet.docx | |
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The world's income is distributed very unevenly. We can see this from the above chart. The values are in dollars and show that the USA has the highest average income per household in the world. Compared to Ethiopia, the USA has an average household income of nearly 60 times in size. This doesn't just include workers, it includes everybody in the population.
Key term: DEVELOPED COUNTRIES - Countries with a relatively high income per person. – USA/ UK/Spain
Key term: NIC - NEWLY INDUSTRIALISED COUNTRIES - have middle incomes – China/Brazil/India
Key term: DEVELOPING COUNTRIES - Countries with a lower income per person than developed countries – Ethiopia/Nigeria
The above diagram shows how the average income per person is split across the world. It shows where developed, NICs and developing countries are placed. What is this information telling you?
The level of development of an economy affects its imports and exports.
Key term: IMPORTS - Are goods bought from abroad.
Key term: EXPORTS - Are goods sold abroad.
How developed a country is will determine how much it imports and exports. Factors affecting how much a country imports
- 1.Average Income of the importing country
- 2.Price of imported goods
- 3.The quality of the goods
- 4.Level of technology
Average incomes:
In high income countries, average incomes are tens of times higher than in low income countries. This helps explain why countries like the UK and the USA spend far more on imports than low income countries. In the UK, our high income means we are buying products made across the world (e.g. clothes from China, toys from India and holidays in Spain and the Caribbean). A person in a low income country will buy hardly any products made outside that country. This means that UK businesses are far more likely to sell their products to European and North American customers, rather than those in India or China. They would not be able to afford them.
In high income countries, average incomes are tens of times higher than in low income countries. This helps explain why countries like the UK and the USA spend far more on imports than low income countries. In the UK, our high income means we are buying products made across the world (e.g. clothes from China, toys from India and holidays in Spain and the Caribbean). A person in a low income country will buy hardly any products made outside that country. This means that UK businesses are far more likely to sell their products to European and North American customers, rather than those in India or China. They would not be able to afford them.
Wages and prices
UK businesses and consumers can take advantage of low wages paid to workers in developing countries. Many products such as clothing are now made in developing countries (e.g. Tesco and Primark). Developing countries are therefore a source of cheap imports for rich developing countries.
UK businesses and consumers can take advantage of low wages paid to workers in developing countries. Many products such as clothing are now made in developing countries (e.g. Tesco and Primark). Developing countries are therefore a source of cheap imports for rich developing countries.
Quality and technology
Many products made in developing countries are too poor quality or not sufficiently technologically advanced to be sold to customers in rich developed countries. Although these products (like cars), are very cheap compared to products made in developing countries, they often do not conform even to the minimum safety standards laid down by governments in developed countries. In contrast, developing countries tend to buy high quality, high technology products from developed countries. So, businesses in developed countries tend to sell high priced, high quality products to developing countries and businesses in developing countries tend to sell lower quality, less technologically advanced but cheaper products to developed countries.
Many products made in developing countries are too poor quality or not sufficiently technologically advanced to be sold to customers in rich developed countries. Although these products (like cars), are very cheap compared to products made in developing countries, they often do not conform even to the minimum safety standards laid down by governments in developed countries. In contrast, developing countries tend to buy high quality, high technology products from developed countries. So, businesses in developed countries tend to sell high priced, high quality products to developing countries and businesses in developing countries tend to sell lower quality, less technologically advanced but cheaper products to developed countries.
What is this video telling us?
Key term: TRADE BARRIERS - Measures designed to reduce imports and encourage domestic firms to sell products at home or export
Key term: PROTECTIONIST POLICIES - measures designed to reduce foreign goods coming in to a country
Some businesses are affected by import protection and export subsidies. Nearly every country in the world operates protectionist policies. These are measures designed to reduce the amount of imports coming into a country, and in doing so, help to give an advantage to domestic forms, not only in selling products in the country but also in exporting products.
Import protection is designed to reduce imports being bought from abroad. One of these is tariffs or customs duties.
Key term: TARIFFS OR CUSTOMS DUTIES - Taxes put on goods imported into a country which make them more expensive to buyers.
For example, the Indian government imposes a 60% tariff on imported cars. This means a car sold to India for £10,000 would cost £16,000 to import. This means £6,000 is the amount of tax levied on the car as an import. This would help reduce the number of foreign cars in the Indian market. This creates less competition for Indian car manufacturers, and allows them to sell more cars in India.
Why do you think the government would do this?
Why do you think the government would do this?
Key term: QUOTAS - Limits on the physical number of goods that can be imported over a period.
For example, a country might impose a quota of 100,000 cars imported from Japan. This means businesses like Toyota and Honda can only sell 100,000 cars to a country in a year. Safety standards can be a hidden form of import protection.
Many countries operate a system of export subsidies.
Key term: EXPORT SUBSIDIES - Measures that reduce the price of goods sold.
The government might give firms that export products money (a subsidy) which helps to reduce the cost of production. The effect is to reduce the price of these goods sold abroad. It therefore makes the country's exports more price competitive and so sales may be higher. They are simply the opposite of a tax. Round the world today, many governments subsidise the exports of agricultural products like wheat or cotton. This gives their farmers an advantage over competitors in other countries. One common subsidy in car manufacturing is for governments to give grants to car makers developing new cars. This lowers their research and development costs - so can be sold for cheaper.