1 Specialisation and comparative advantage

a) Benefits and costs of specialisation and trade in the international context.

b) The theory of comparative advantage:

• the distinction between absolute and comparative advantage

• assumptions underlying the theory of comparative advantage

• limitations of the theory of comparative advantage.

 

2 Patterns and volume of world trade

a) Factors influencing patterns of trade between countries and causes of changes in these patterns:

• impact of emerging economies

• changes in comparative advantage

• growth in trading blocs and bilateral trading agreements

• changes in relative exchange rates

• changes in protectionism between countries.

b) Changes in trade flows between countries, and the reasons for these changes.

 

3 Terms of trade

a) Understanding and calculation of the terms of trade.

b) Factors influencing a country’s terms of trade, changes in:

• relative inflation rates • relative productivity rates • relative labour costs

• the exchange rate • the prices of imports and exports.

c) The impact of changes in a country’s terms of trade on:

• export revenues • living standards • balance of trade.

 

4 Trade liberalisation and trading blocs

a) The role of the World Trade Organization (WTO) in trade liberalisation.

b) Types of trading blocs:

• free-trade areas • customs unions

• common markets • economic and monetary unions.

c) Costs and benefits of membership of a trading bloc:

• trade creation • trade diversion

• costs and prices • economies of scale •

transaction costs • movement of factors of production.

d) Possible conflicts between trading blocs and the WTO.

 

5 Restrictions on free trade

a) Reasons for restrictions on free trade:

• to protect infant and geriatric industries

• to protect domestic industries and employment

• to protect national security

• to prevent dumping

• to correct a deficit on the current account of the balance of payments

• to raise revenue.

b) Types of restrictions on free trade:

• tariffs • quotas • non-tariff barriers • subsidies to domestic producers.

c) Impact of protectionist policies on:

• consumers • producers • governments • living standards • equality.