1. Free trade which is also known as International Trade, had the original intention that goods and services could be exchanged freely between countries with no barriers. Now there must be a free trade agreement between two or more countries where they have established a free trade area across their common boarders, without hindrances or tariffs but labour and capital may not be moved as freely. Members countries normally impose a uniform tariff also known as common external tariff with non-member countries
2. Comparative advantage is when a country has a comparative advantage if it can produce a good at a lower opportunity cost that another country, having a lower opportunity cost means it has to forego less of other goods in order to produce it. Absolute advantage means an economy can produce more of a good in the same time period as someone else in a different country, this means they can produce the same product at a lower absolute cost.
3. Trading internationally is a great thing for countries to do as it has many benefits. Intentional trade is the exchange of goods and services. It is also one of the many important sources of earnings for developing countries. By trading international profits and sales will increase due to more things being sold internationally profits can be made by selling for a higher price but less than what it costs in that country. It also allows you to potentially extend your sales of existing products, this could help a company branch out and extend their market and sell more to new customers. By trading international can also help a company gain global market shares, if a company is new to the market they could join with a larger company to help sell more products, by doing this it allows the smaller company to grow the can then grow, lower their prices and gain customers from their competitors.
4. Protectionism is when a country shields its domestic industries from foreign companies by taxing anything that is imported in to the country. Whereas barriers to trade is when a quota, tariff or a nontariff barrier is used on imports. A tariff is a tax on any import which is collected by the government which also increases the cost of the good to the consumer. This is used to help lower the amount of imports and help raise revenue for a country. Whereas a quota is a limit on a selected good that could be imported to the country this can be voluntary or be legally enforced by the government. Both of these could be used by many countries, for example, America may want to use barriers to trade to place a tariff on anything that is being imported to help make more money for their government.
5. The World Trade Organization is a global international organization which help with the dealing of the rules of trade between different countries. It was formed on January 1st 1995 in Geneva. The World Trade Organization helps create agreements and negotiates between the worlds trading nationals and their parliaments. World Trade Organization help with the development of free trade between countries
6. The United States made an trade agreement with Canada which went in to force on January 1st 1989 which helped create a free trade agreement between them. Then in 1991 talks began with Mexico who then entered in to an agreement in January 1st 1994, any tariffs that were in place were taken away and all quantitative restrictions and duties with some restrictions on a number of agricultural products which are traded in Canada were all eliminated by 2008. The NAFTA also covers rules of origin, dispute settlement procedures and many more within the free trade agreement.
10.Fixed exchange rates are used when a country wants to keep the value of its currency at a certain level against a different countries currency. Whereas floating exchange rates is when the external value of the currency depends only on the market forces of demand and supply. Fixed exchange rates have many advantages, for example, it helps a country avoid devaluation of their currency, meaning that exports become cheaper and more companies are more than likely to buy from them as they could possibly be the cheapest between them and their competition, this will help boost demand and maybe create new jobs. Another advantage is that it can also avoid currency fluctuation, this helps a country avoid any currency changes, this means that if the value of the currency changes it could possible affect businesses if the export any of their goods, if they import goods it would increase the cost of it and reduce their profits. A third advantage is that it encourages companies to invest in a country, as it’s a stable currency, companies will feel safer investing, whereas if an exchange rate is contently changing it can reduce the profit which a company will make. But there are also many disadvantages of having a fixed exchange rate, for example, its less flexible, if a products price was to increase, the country which imports that would see a decrease in profits as not many people would then have the amount of money to pay for it. Another disadvantage is that a country may pick the wrong time to fix their exchange rate, some exchange rates change every day so if country was to make their currency a fixed number they may miss out on it being a higher number meaning they would be losing profits and less companies will want to trade from there. A third disadvantage is that it will need to have higher interest rates, the government may need to put up interest rates to make up any money that is lost due to the currency going below its worth, by doing this it may be bad for their economy. Floating exchange rates are different to fixed exchange rates as they can change, this has many advantages for this, for example, it has more freedom as countries that are fixed to one currency such as the dollar don’t have the same freedom to change interest rates, this is makes the country have limits. Another advantage is that there is a reduced need for any currency reserves, since there is no exchange rate target for a country to meet so there is less need for banks to hold foreign currency. A third advantage is that there is less opportunity for any speculation for currency which reduces ricks, people try and attack weaker currencies where a government is trying to get a fixed exchange rate. With all of this there is also many disadvantages such as lack of investments, if the currency can change value it may make businesses think about trading somewhere else as they could loss profit. Another example is that it is the uncertainly of the exchange rate changing, a seller might not be sure how much profit they could make due to the currency changing all the time this also reduces the amount of companies who would trade within that country. A third disadvantage is that it doesn’t have any discipline that they need to maintain a good exchange rate in the economy this could cause a lot of problems but could be ignored until they have a crisis situation that they will need to sort.
12. Newly Industrialised Country are countries whose economy hasn’t reached its full development but have outgrown their developing such as places like Mexico, China, Malaysia and Turkey, each of these countries have now developed into an industrialized and urban economy which are also known as an advanced developing country. Some characteristics include improved standards of living, as the economy gets better so does the standards of living, there is better education and health care, however it is a long process and usually take longer before the population notices any differences. Another characteristic is that the economy grows at a better and faster rate, the income of the population is also increasing but not always at the same rate as the economy.