Trade and Specialisation Essentials

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Questions and Answers

How does specialisation improve productivity in trade?

Specialisation improves productivity by allowing individuals and countries to focus on producing goods they are best at, enhancing skill and efficiency in the process.

What factors contribute to countries having advantages in producing certain goods?

Countries may have advantages due to favourable climates, superior technology, or lower production costs.

What has contributed to the rising trend of global trade since around the year 2000?

Contributing factors include lower transportation costs, reduced trade barriers, and China's accession to the World Trade Organisation.

What are some potential problems arising from international trading?

Potential problems include market monopolies or oligopolies, unemployment from industry relocation, and uneven bargaining power. Signup and view all the answers

What are the two types of trade mentioned and how do they differ?

The two types of trade are domestic trade, which occurs within a country, and international trade, which occurs across different countries. Signup and view all the answers

How can high transportation costs negatively impact trade?

High transportation costs can offset the benefits of trade by making imported products expensive and less attractive to consumers. Signup and view all the answers

What is the purpose of implementing trade protection policies?

Trade protection policies aim to shield local industries from foreign competition and secure the supply of vital products. Signup and view all the answers

Explain how a tariff affects imported goods.

A tariff increases the price of imported goods, making them less competitive compared to locally produced products. Signup and view all the answers

What is the effect of a quota on imported products?

A quota limits the quantity of specific imported products, thereby controlling market supply and protecting domestic producers. Signup and view all the answers

How do subsidies influence local production?

Subsidies lower production costs for local products, making them cheaper and more competitive against imports. Signup and view all the answers

What is one way tariffs impact consumers?

Tariffs typically lead to higher prices for imported goods, which consumers end up paying. Signup and view all the answers

How do subsidies benefit consumers?

Subsidies lower the price of goods as the government supports local producers. Signup and view all the answers

What is a potential response by a country to trade protection policies?

A country can engage in high-level dialogue with the imposing country. Signup and view all the answers

What role does the World Trade Organisation (WTO) play regarding trade disputes?

The WTO settles trade disputes between member states. Signup and view all the answers

Why is Hong Kong considered an entrepôt?

Hong Kong is seen as an entrepôt because 98% of its exports are re-exported. Signup and view all the answers

What is one challenge facing Hong Kong's trading environment?

Limited land and higher labor costs make Hong Kong's port less competitive. Signup and view all the answers

Which course of action could help Hong Kong address its trading challenges?

Signing more Free Trade Agreements with other economies could help. Signup and view all the answers

How can developing new industries assist Hong Kong's trade situation?

Developing new industries can diversify the economy and reduce reliance on traditional sectors. Signup and view all the answers

Study Notes

Trade and Specialisation

Trading is essential for specialization, as people focus on one type of good, needing other goods from trade.
Specialization improves productivity, as people become more skilled at specific tasks.
Countries specialize in producing goods where they have advantages, like favourable climates for agriculture, advanced technology, or lower production costs.
Trading allows countries to use resources efficiently, boosting productivity and output.

Terminologies

Domestic trade:
- Trade within a country or region.
International trade (External trade):
- Trade between countries or regions.
Trade in goods (visible trade):
- Trading physical goods.
Trade in services (invisible trade):
- Trading services.
Import:
- Shipping goods into a country.
Export:
- Shipping goods from one country to another.
Re-export:
- Shipping previously imported goods to another country.

Trends in Global Trade

Global trade has been increasing significantly since around 2000.
Reasons include lower transportation costs and trade barriers, and the accession of China to the World Trade Organization

Gains from Trade

Efficient resource use
Economic development
Job creation
Cheaper goods
Increased investment & technology
Improved product quality

Problems Arising from Trading

Market monopolies/oligopolies reduce consumer choice
Relocated industries cause unemployment in some countries
Unequal bargaining power between trading nations

Why Doesn't Trading Always Happen?

Natural reasons:
- High transportation costs for perishable goods or those that require long distance transportation.
Policy reasons:
- Protecting local producers from foreign competition
- Ensuring security of key materials
- Maintaining social stability and employment
- Maintaining local culture
- Increasing government tax revenue,
- Retaliation against other tariffs or trade restrictions.

Trade Protection Policies (Policies that limit trade)

Tariffs : Taxes on imports that increase prices.
Quotas : Limiting the quantity of imported goods.
Subsidies : Lowering the prices of domestically produced goods.
Foreign exchange controls: Making it difficult to import.
Embargoes: Complete bans on importing or exporting.
Tariffs, quotas, subsidies, and foreign exchange controls affect consumers by raising prices for imports..

Responses to Trade Protection Policies

High-level dialogues between countries
Expanding domestic markets and reducing reliance on exports
Joining the World Trade Organisation (WTO)
WTO's role: a forum for negotiating trade agreements and resolving trade disputes.

Trade in Hong Kong

Hong Kong is a free-trade territory with generally no import/export restrictions.
Hong Kong is a significant trading hub (world’s 10th largest in merchandise trade and 21st in commercial services) but has seen a slight decline in recent years.
A vast majority of Hong Kong's exports are re-exports.
challenges include logistical infrastructure limited space and higher labour costs, and competitive pressures from neighboring ports.
Possible responses include more free-trade agreements, developing new industries & services, developing new markets, improving logistical infrastructure (like expanding the airport).

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Description

Explore the fundamentals of trade and specialization in this quiz. Learn how countries focus on specific goods, the impact of trade on productivity, and key terminologies like domestic and international trade. Test your knowledge on how trade facilitates resource efficiency and drives economic growth.