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4.2 Why trade?

What students need to learn:

Students should be able to:
Additional Guidance Notes
Patterns of trade
Identify patterns of trade between developed and developing countries.
Students should be aware of changes in trade flows between countries and the reasons for them, for example the potential impact of China and India on world trade patterns and the possible reaction of developed economies.
Specialisation and comparative
Understand the benefits and costs of specialisation and trade; the law of comparative advantage.
Students should understand the distinction between absolute and comparative advantage. The significance of opportunity cost should be emphasised. Comparative advantage may be illustrated numerically and diagrammatically.
Understand the role of the World Trade Organization (WTO) in trade liberalisation; trading blocs.
The distinction between different types of trading blocs should be understood. Possible conflicts between trading blocs and the WTO should be considered.
Restrictions on free trade
Identify potential restrictions on free trade: reasons and types for example, tariffs, quotas, non-tariff barriers, subsidies to domestic producers.
Diagrammatic representation of tariffs is required (to include welfare changes and government revenue).
Identify potential effects of protectionist policies on resource allocation.
Students should examine cases of protectionism currently in the news.

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