Benefits of International Trade

You are expected to explain/analyze (AO2) various benefits of international trade (SL+HL), draw (AO4) how markets change with international trade (SL+HL), and calculate (AO4) exports and imports from given data (HL)

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Benefits

Advantages (HL)

Limits of Comp. Adv. (HL)

List of Benefits (AO2)

Increased competition: Domestic firms now have to compete against international firms
Lower prices: The increase in competition, as well as economies of scale, lowers prices
Greater choice: More firms supplying products = More choice
Acquisition of resources: Firms can purchase needed resources from other countries
More foreign exchange earnings: When firms sell in other countries, they make money in that country's currency
Access to larger markets: More countries = More markets
Economies of scale: The more of something is produced, the lower the per-unit cost of that product.
Larger markets = more goods produced = lower per-unit cost
More efficient resource allocation
More efficient production

How Markets Change With International Trade (AO4)

Diagram of domestic market before international trade:

Basically a regular supply and demand diagram, but with S and D labelled with a "domestic" or "d" subscript for clarification.

Diagram of market when world price is lower than domestic price:

The world price is a perfectly price elastic line, because global trade is assumed to turn markets into a perfect competition
However, at the world price, domestic producers are only willing and able to supply Q(s)
Domestic consumers are willing and able to purchase at Q(d)
This causes a shortage, and the difference will have to be imported from abroad

Diagram of market when world price is higher than domestic price:

The world price is a perfectly price elastic line, because global trade is assumed to turn markets into a perfect competition
However, at the world price, domestic consumers are only willing and able to purchase at Q(d)
Domestic producers are willing and able to produce at Q(s)
This causes a surplus, and the difference will have to be exported to abroad

Everything below here is for HL.

Import and Export Expenditure (AO4) (HL)

As an HL student, you are also expected to be able to calculate the amount of exports and imports from these diagrams, given numbers:

When you import, domestic firms lose revenue (from blue box to green box)
When you export, domestic firms gain revenue (from blue box to green box)

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