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Explain the following international trade terms - Leaving Cert Business - Question C - 2016
Question C
Explain the following international trade terms. (i) Open economy (ii) Trading bloc (iii) Protectionism (iv) Deregulation
Worked Solution & Example Answer:Explain the following international trade terms - Leaving Cert Business - Question C - 2016
Step 1
Open economy
Answer
An open economy is one that actively engages in international trade, allowing goods and services to be exchanged across borders. This economic structure facilitates the transfer of funds across borders, enabling countries to borrow from one another when necessary. A significant measure of an open economy is the ratio of exports and imports to a country’s GDP. For instance, in Ireland, nearly 80% of what is produced is exported.
Step 2
Trading bloc
Answer
A trading bloc refers to a group of countries that come together to form a free trade area or a common market to eliminate trade barriers among member states. Examples include the European Union and NAFTA, which encompasses countries like the USA, Canada, and Mexico. These trading blocs foster trade by allowing members to trade without tariffs and simplifying customs processes for imports and exports.
Step 3
Protectionism
Answer
Protectionism is an economic policy implemented by governments to shield domestic industries from foreign competition. This is done through various means such as tariffs, quotas, and subsidies. By imposing these measures, governments can protect local jobs and industries, although it may lead to higher prices for consumers and potential retaliation from trade partners.
Step 4
Deregulation
Answer
Deregulation involves the reduction or elimination of government controls in a particular industry, aiming to promote competition. By removing legal barriers to entry, deregulation typically increases market competition. A prime example is the airline industry in the EU, where deregulation has allowed for more choices for consumers and has led to the emergence of low-cost airlines like Ryanair.