What questions would you like to ask?

From which country does the UK import the most services? (1) Germany To which country does the UK export the most services? (1) Ireland What is meant by an export? (2) Goods or services that UK firms provide and sell to people and firms not resident in the UK. They result in money coming in to the UK What is meant by an import? (2) Goods or services that UK people or firms buy from foreign firms They result in money leaving the UK Explain what is meant by a trade surplus (2) Where the value of exports exceeds the value of imports Which countries are part of the EU? Which use the Euro? EU – Ireland, Germany, Netherlands, France, Sweden Euro – Ireland, Germany, Netherlands, France

Use figure 1.) to calculate the UK’s Invisible Trade Balance with Germany (2) = £1.7bn surplus Explain what is mean by specialisation? (2) This is where a firm or country focuses on producing a narrower range of goods or services. In this case the UK specialises in services as it is more efficient at producing these Explain what is meant by absolute advantage?(2) Two marks for a statement such as: “Absolute advantage is where a country has some benefit/advantage over other countries in the production of a product.” OR Two marks for a statement identifying the benefit/advantage with further development such as: “Absolute advantage is when a country produces a good/service with fewer resources and at a lower cost”. Explain how the UK economy benefits from specialisation in this context (4) By specialising in goods and services in which it has an absolute advantage. This means it can produce services such as…..with fewer resources and at a lower cost. It can then sell these overseas leading to more exports and higher levels of GDP as a result. It can then buy other goods from other countries who can produce products at a lower cost than in the UK. This enables goods and services to be purchased at lower prices and helps keep inflation low. Therefore living standards are higher.

Are there any disadvantages of trade specialisation to the UK? Danger of overspecialisation. Vulnerable if demand for goods and services we specialise in falls. UK currently runs a current account deficit due to the value of imports of manufactured goods

What questions would you like to ask?

Current Account – the balance of trade in goods and services plus net investment income from overseas assets Surplus – where the value of exports exceeds the value of imports Deficit – where the value of imports exceeds the value of exports Balance of Trade in Services – the difference between the value of exports of tertiary sector services and the value of imports of tertiary sector services

Calculate the Balance of Trade in Services in 2011 (2) £97311m - £43564M = £53747m surplus Which service earns the UK most export revenue (1) Professional etc services Which service does the UK import most of (1) Professional etc services Using fig 2 and 3 For which service does the UK have the biggest trade surplus (2) Professional etc Services of £15620m

The evidence says the UK has an overall deficit on the current account of the balance of payments Explain two reasons why the UK might have a current account deficit (6) Possible Reasons – you need to PBT Loss of advantage in many industries Globalisation Growth in peoples real incomes Exchange Rate Low levels of productivity and investment Relatively weak product innovation Globalisation – because it is cheaper to produce goods where costs are low eg labour costs. Therefore we are now importing more manufactured goods from countries like China. This rise in imports has increased the current account deficit Low levels of productivity – disappointing productivity has meant the average cost of producing products is higher than in other countries. Therefore our products are less competitive leading to more imports and less exports.

Other than quotas and tariffs state two possible solutions which a government might adopt in order to improve a deficit on the current account of the balance of payments (2)

Discuss which of the solutions you identified above may be better for improving a deficit on the current account of the balance of payments. (8)

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What is meant by the term free trade? (2 marks) What is meant by the term globalisation (2 marks)

Explain two reasons why countries trade with one another (4 marks)

State and explain two benefits to UK consumers arising from free trade (4 marks)

Explain the following problems of increased world trade and how they may affect the UK (6 marks) Increased Negative Externalities – Global Interdependence – Possible increased income inequality -

Increased Negative Externalities – higher pollution, CO2 emissions etc. These may result from producing and transporting more goods. Global Interdependence – Makes the UK more vulnerable to external shocks. For example slow growth and recessions in the Euro Zone countries are currently impacting on the UK as these nations buy our exports Possible Increased Income Inequality – Often the benefits of trade are not shared out equally. Developed countries tend to benefit more from trade than some developing countries. Also within countries the benefits may not be shared out equally. Entrepreneurs and business people may see more of the benefits than the workers. Particularly in developing countries where wages are often low. Trade may also lead to income inequality if people are made unemployed due to foreign competition.

Be careful : If it says UK – link explicitly to UK If it says economy – link to big economic indicators (Inflation, Unemployment, Economic Growth, Balance of Payments)

What questions would you like to ask?

Explain how the change in forecasted growth may affect the UK Economy (4 marks) If trade growth slows there may be a fall in demand for UK exports. This may lead to lower economic growth in the UK and even a possible rise in unemployment. UK may be hard hit as over 50% of our trade is with Europe where demand is weakest. China is not currently one of our biggest export markets BUT This is only a forecast Trade is still forecast to grow so the impact may be limited. Trade is not forecasted to fall. UK exports are only 32% of GDP so may not be that significant

Protectionism – where an action is taken that reduces international trade Protectionist Methods Tariffs – A tariff is a tax imposed on a good or service from another country to raise its price and reduce the quantity demanded. This makes foreign imports more expensive A Subsidy – Is a payment made by the government to producers of a good or service so as to increase quantity or reduce price. It gives domestic businesses advantages over foreign producers. A Quota – This is a physical limit on the number of goods of a certain type that are allowed into a country. It can be in the form of a stated number or a percentage of the total market An Embargo – This is a ban on the import of a good or service Regulations – Many countries try to limit imports through a variety of rules. You may have noticed that Volvo cars (from Sweden) always have their lights on. This is because the law in Sweden demands this. All cars exported to Sweden have to change their wiring so that they obey this law, thus increasing costs

To what extent will the growth of China benefit the UK through international trade (12 marks – June 2011)

The benefits of protectionist policies outweigh the costs – do you agree with this statement justify your answer (10 marks)