4.1.2 International Trade & Business Growth

📝 General Notes and Definitions

Imports are goods and services brought into a country from another
Exports are goods and services sold to another country
A trade deficit is when the value of imports is greater than exports and a trade surplus is vice versa

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Why do countries trade with one another?

To obtain a certain good that they may not produce in their own country – other countries can produce it at a lower opportunity cost
Maintain relationships with other countries – especially neighbouring countries

Division of Labour in Different Sections

🔗 Division of labour – when a task is broken down and people can focus on one part

🔗 Specialisation – when a country concentrates on the production of a limited range of goods and services

Higher quality products -> High customer satisfaction and increased brand loyalty
Achieve economies of scale by producing the same product on a larger scale -> Improved profit margins
Dependence on one product line and revenue stream -> Lack of collateral or resilience in the event of an economic shock or decline in sales
Knock-on effect to rest of the economy -> Higher unemployment in other industries -> Less purchasing power for consumers and lower tax revenue for government to provide incentives 🔗 Comparative advantage – the ability of a country to be more efficient in the production of one type of good than another type of good

🔗 Foreign Direct Investment – Where a firm is operating in one country and chooses to operate a part of its business in another country

Creates jobs resulting in higher household incomes
Higher government tax revenue to provide more subsidies and grants for businesses
Businesses can invest in infrastructure to lower transport costs
Businesses bring technology and innovation to the country to encourage research and development

High initial costs of moving and setting up
Businesses may bring their own workers or have capital-intensive systems, so new jobs won't be created