4.1 Benefits of international trade

Objective notes

4 learning objectives

4.1.1Benefits of international trade

• Trade can increase competition, lower prices, expand choice, and provide access to resources

• Trade can raise foreign exchange earnings, access larger markets, generate economies of scale, and improve resource allocation and production efficiency

• Diagram: free trade illustrating exports when world price is above domestic price

• Diagram: free trade illustrating imports when world price is below domestic price

4.1.2(HL)—Absolute and comparative advantage

• Comparative advantage is based on lower opportunity cost

• Specialization and trade can create gains from trade

• Sources of comparative advantage explain why countries trade

• Diagram [HL]: linear PPCs showing different opportunity costs and gains from specialization and trade

• Calculation [HL]: opportunity costs from data to identify comparative advantage

4.1.3(HL)—Limits of comparative advantage

• Comparative advantage theory has limitations in real-world trade analysis

• Evaluation should consider assumptions, distributional effects, and practical constraints

4.1.4(HL)—Trade quantity and value calculations

• Calculate quantity of exports and quantity of imports from a diagram

• Calculate import expenditure and export revenue from a diagram