Why countries import and export goods and services
If you think right back to the start of the course, when we covered specialisation, this is the main reason why countries trade. Different countries have different specialties. When you specialise you increase output. This means
by all countries specialising and trading for what they need everyone has more output and a wider market for their products.
Increased trade has helped to foster better relations between nations. For consumers it means a wider variety of choice in the products they can buy and also better quality products made by specialist producers. Specialist
producers tend to have cost advantages and so can offer lower prices for consumers.
For producers, they gain access to a larger market. This may make it viable to grow in size and take advantage of economies of scale. The increased competition drives innovation and efficiency improvements but can be a double-edged
sword for firms who cannot compete with cheaper foreign imports. Access to a wider market for the factors of production can mean better quality inputs or inputs at a better price.
Free trade agreements
Free trade agreements are agreements between countries to not impose restrictions on the amount of goods and services that can be imported or exported or to apply tariffs to imports. A tariff is a tax charged on imported goods.
The European Union is one of the largest free trade agreements. As well as agreeing to free trade between member nations all of the members also agree to accept trade deals negotiated with other countries on behalf of the
entire union. One of the reasons given for the UK to leave the European Union was that the UK would be free to establish better trade deals with other countries. However so far most new deals are a mirror of the deal the UK had with
the EU and issues over the Northern Ireland protocol have left them unable to secure a deal with the USA.
Exam style questions
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Questions
Explain what an import is. (2 marks)
A good or service from another country(1) purchased and consumed in this country.(1)
Explain what an export is. (2 marks)
A good or service from this country(1) purchased and consumed in another country.(1)
Explain how trade affects output. (2 marks)
Countries can specialise in what they are best at producing increasing output(1) and trade for the rest.(1)
Explain one advantage to consumers of increased international trade. (2 marks)
Lower prices and or better quality inputs to production(1) can be acquired from foreign suppliers.(1) or
A wider market(1) as they can now sell there goods in other countries.(1)
The ability to grow and
Explain one advantage to producers of increased international trade. (2 marks)
Lower prices(1) due to buying from specialist producers.(1) or
Better choices(1) due to being able to get goods and services from other countries.(1)
Explain what a free trade agreement is. (2 marks)
An agreeement between two or more countries(1) for the free movement of goods and services between the countries.(1)