International Trade and Free Trade

Study Notes

Definition: The exchange of goods and services between different countries
Importance:
- Increases economic efficiency by allowing countries to specialize in production
- Provides access to a wider range of goods and services
- Encourages economic growth and development
Types of international trade:
- Visible trade: trade in tangible goods (e.g. cars, food)
- Invisible trade: trade in intangible services (e.g. tourism, education)

Definition: The unrestricted exchange of goods and services between countries without tariffs, quotas, or other trade barriers
Advantages:
- Increases economic efficiency by allowing countries to specialize
- Lowers prices for consumers
- Encourages economic growth and development
Disadvantages:
- May lead to job losses in industries that are not competitive
- Can widen income inequality

Definition: A group of countries that have reduced or eliminated tariffs and other trade barriers among themselves
Examples:
- European Union (EU)
- North American Free Trade Agreement (NAFTA)
- Association of Southeast Asian Nations (ASEAN)
Advantages:
- Increases trade and investment among member countries
- Promotes economic integration and cooperation
- Enhances regional competitiveness
Disadvantages:
- May lead to trade diversion (trade is diverted from non-member countries)
- Can create trade barriers with non-member countries

Definition: A record of a country's international transactions, including trade in goods and services, income, and transfers
Components:
- Current account: records trade in goods and services, income, and transfers
- Capital account: records investments, loans, and other financial transactions
Importance:
- Helps identify a country's trade and investment patterns
- Influences exchange rates and foreign exchange reserves
- Affects a country's overall economic stability

International trade is the exchange of goods and services between different countries.
It increases economic efficiency by allowing countries to specialize in production, providing access to a wider range of goods and services.
International trade encourages economic growth and development.

Visible trade involves the exchange of tangible goods, such as cars, food, and clothing.
Invisible trade involves the exchange of intangible services, such as tourism, education, and healthcare.

Free trade is the unrestricted exchange of goods and services between countries without tariffs, quotas, or other trade barriers.
It increases economic efficiency by allowing countries to specialize in production.
Free trade lowers prices for consumers, encourages economic growth and development, and promotes economic integration.
However, free trade may lead to job losses in industries that are not competitive and widen income inequality.

A trading block is a group of countries that have reduced or eliminated tariffs and other trade barriers among themselves.
Examples of trading blocks include the European Union (EU), North American Free Trade Agreement (NAFTA), and Association of Southeast Asian Nations (ASEAN).
Trading blocks increase trade and investment among member countries, promote economic integration and cooperation, and enhance regional competitiveness.
However, trading blocks may lead to trade diversion (trade is diverted from non-member countries) and create trade barriers with non-member countries.

The balance of payments is a record of a country's international transactions, including trade in goods and services, income, and transfers.
It consists of the current account (records trade in goods and services, income, and transfers) and the capital account (records investments, loans, and other financial transactions).
The balance of payments helps identify a country's trade and investment patterns, influences exchange rates and foreign exchange reserves, and affects a country's overall economic stability.