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Questions and Answers
What type of economy engages in international trade?
Which of the following is NOT a benefit of international trade for Ireland?
What is a disadvantage of international trade mentioned in the content?
What is a closed economy?
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How does international trade affect consumer prices in Ireland?
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The balance of payments is a financial summary of a country's transactions with the rest of the world over a specific period, encompassing both the current account and the _____ account.
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Ireland's dependency on foreign markets is an advantage of international trade.
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What effect might a slowdown in the economy of Ireland's main trading partners have?
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What does the current account record in the balance of payments?
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What is an open economy?
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What is a closed economy?
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How can companies benefit from international trade?
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What advantage do consumers get from international trade?
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What could be a negative effect of international trade on domestic industries?
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International trade leads to even economic development across all sectors.
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What impact could a slowdown in the economy of main trading partners have on Ireland?
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What is one environmental impact of international trade?
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Study Notes
Open Economy vs. Closed Economy
- An economy that engages in international trade (imports and exports) is an open economy.
- Ireland is a small open economy.
- An economy that does not engage in international trade is a closed economy.
- Most nations do not trade with North Korea.
Benefits of International Trade for Ireland
For Firms
- Companies can benefit from economies of scale by increasing production. These savings may pass on to consumers through lower prices.
- Businesses have access to raw materials not readily available domestically, such as oil, coal, and petrol.
- Companies can sell their output to an international market when the domestic market is too small.
For Consumers
- Consumers have access to a wider variety of products through international trade, with the option to purchase goods not available domestically.
- International trade leads to greater competition, resulting in more competitive prices for consumers. This helps reduce the rate of inflation.
For the Economy
- International trade injects capital into the economy when Irish goods and services are bought abroad.
- This capital contributes to economic growth through consumption, taxation, and savings.
- Employment and investment opportunities are created as a result of trade, leading to greater economic stability and security.
Costs of International Trade for Ireland
- International trade can negatively affect domestic industries due to imports of cheaper goods and services.
- This can lead to job losses in local SMEs and slower economic growth.
- Uneven economic development can occur with specialisation, creating a bias toward specific industries.
- Ireland's reliance on foreign markets makes it vulnerable to economic slumps in its trading partners, impacting exports, employment, profits, and tax revenue.
- Ireland's reduced reliance on British trade lessened its exposure to Brexit.
- The COVID-19 pandemic highlighted Ireland's dependence on foreign markets due to supply chain disruptions and travel restrictions.
- Increased CO2 emissions from transport-related activities associated with international trade have an environmental impact.
Implications of International Trade
Advantages of International Trade
- Increased consumer choice
- Lower prices
- Expansion of markets
- Increased employment
- Economic growth
Disadvantages of International Trade
- Job losses in domestic industries
- Environmental degradation
- Increased economic vulnerability
- Uneven economic development
Balance of Payments
- The balance of payments summarizes a country's financial transactions with the rest of the world over a specific period.
- It includes the current account and the capital and financial accounts.
- The current account includes the trade balance (exports less imports), net income from abroad, and net transfers (such as gifts and remittances).
- The capital account records non-recurring inflows and outflows, such as amounts receivable from the EU regional development fund.
Open and Closed Economies
- An open economy engages in international trade, importing and exporting goods and services.
- A closed economy does not engage in international trade.
- Ireland is a small open economy.
Benefits of International Trade for Ireland
-
Firms:
- Economies of scale: Companies can benefit from larger production runs, leading to lower costs and potentially lower prices for consumers.
- Access to raw materials: Firms can source essential raw materials not available domestically, enabling them to produce goods that would otherwise be impossible.
- Larger markets: Firms can sell their products to a wider customer base outside of the limited Irish market.
-
Consumers:
- Greater choice: Consumers have access to a wider variety of goods and services through imports.
- More competitive prices: Increased competition from imported goods can lead to lower prices for consumers and potentially lower inflation.
-
Economy:
- Capital injection: Exports bring money into the Irish economy, stimulating spending, investment, and tax revenue.
- Employment and investment opportunities: Expanding sectors due to trade create new jobs and encourage investment, benefiting the overall economy.
- Foreign investment: A thriving trading economy attracts foreign investment, further boosting the economy.
Costs of International Trade for Ireland
-
Domestic industries:
- Competition: Imports can create challenges for domestic industries, potentially leading to job losses in smaller companies.
-
Uneven economic development:
- Specialization: Focus on specific goods for export can lead to uneven economic development, potentially neglecting other sectors of the economy.
-
Dependency on foreign markets:
- Economic downturns: A slowdown in the economies of Ireland's main trading partners can negatively impact Irish exports, employment, and tax revenue.
- Supply chain disruptions: Global events like pandemics or political instability can disrupt supply chains and impact the availability of goods in Ireland.
-
Environmental impact:
- Shipping and transportation: Increased shipping and air travel to transport goods globally contribute to carbon emissions and environmental concerns.
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Description
Explore the distinctions between open and closed economies with a focus on Ireland's role in international trade. Understand the benefits that international trade brings to both firms and consumers in a small open economy. Test your knowledge on how trade impacts economic dynamics.
