AQA A2 Economics Unit 4 - June 20th

Can someone tell me the difference between trade deflection, trade creation and trade diversion???

Trade Deflection = redirection of international trade due to the formation of a free trade area. So EU goods go trhough Mexico to get to the USA.

Trade Creation = an increase in international trade that results from the reduction in tariff barriers within a customs union. i.e. UK use to get lamb from New Zealand, but after joining the EU we got lamb from France.

Trade Diversion = switching from buying products from a low cost producer to a high cost producer. i.e. UK has to now buy goods from another EU country rather than from elsewhere such as India or China. (switching from less efficient to high efficient firms)

Hope that was helpful. I tried to give examples to make it more understandable :smile:

Reply 21

BlackAlpaca

What do people think is going to come up in the exam?!?

How are you lot preparing?!

Reply 22

alittlehelp

Good thread, subbing. What part of the syllabus do you find the hardest?

Reply 23

tarek1

Im struggling to understand the demand and supply of labour. If someone was well qualified and skilled then why is their supply curve inelastic. And why is demand inelastic. Surely if wage rates were to fall, then supply would be elastic due to the level of skills they have, so they wont accept a low wage rate.

Can someone pleasee explain??!!

Reply 24

clown100

Original post by tarek1

Im struggling to understand the demand and supply of labour. If someone was well qualified and skilled then why is their supply curve inelastic. And why is demand inelastic. Surely if wage rates were to fall, then supply would be elastic due to the level of skills they have, so they wont accept a low wage rate.

Can someone pleasee explain??!!

Its talking about elasticity of supply to a occupation not of a individual, its basically saying supply is inelastic because if WR increases q of L employed only increases by a little, because of the high skills required to get into the occupation and it will take time to obtain these skills.

can anyone please explain trade deflection to me i have searched google and read my textbook for 2 days now and i still have no idea at all what is is?
Thanks

Reply 25

tarek1

Original post by clown100

Its talking about elasticity of supply to a occupation not of a individual, its basically saying supply is inelastic because if WR increases q of L employed only increases by a little, because of the high skills required to get into the occupation and it will take time to obtain these skills.

can anyone please explain trade deflection to me i have searched google and read my textbook for 2 days now and i still have no idea at all what is is?
Thanks

Thanks.

Trade deflection occurs when when there is a redirection of trade, due to free trade areas. I asked this question as well, look back on the top of page 2.

Reply 26

tarek1

I found this useful when evaluating my arguments:

W - wider context, take a step back and look at the bigger picture.
E - efficiency, is it efficient.
E - equality, is the benefits/ drawbacks wide spread, concentrated, who is effected.
S - scope, how many people are effected.
T - time, Long run vs Short run.
E - effectiveness, how effective is your argument.
P prioritise, which argument is stronger.
S - scale/ magnitude, how strong is the impact.

I found it on tutor2u so look there for further info.

Reply 27

clown100

Thanks mate i use the same evaluation spot on! Yeah i have the defenition in my book, but even reading that and googling for so long i have 0percent idea what it is? Can someone try to explain in a different way or with a real world scenario so i may understand?
Thanks

Reply 28

tarek1

Original post by clown100

Thanks mate i use the same evaluation spot on! Yeah i have the defenition in my book, but even reading that and googling for so long i have 0percent idea what it is? Can someone try to explain in a different way or with a real world scenario so i may understand?
Thanks

So for example, if I wanted to export a product to Egypt, but there are high tariffs to do so, and trade between Libya and Egypt is free, then I can export to Libya first, then to Egypt and avoid the high tariffs.

Just let me know if you still don't understand?? :]

Reply 29

clown100

Oh i kind of get it thanks mate! is that assuming that tariffs are lower in libya than egypt thought right? Also tariffs means a tax on imports, so you dont pay the tax, libya or egypt pay the tax on the goods as they have imposed the tariff so what difference does it make to you?

(edited 11 years ago)

Reply 30

tarek1

Original post by clown100

Oh i kind of get it thanks mate! is that assuming that tariffs are lower in libya than egypt thought right? Also tariffs means a tax on imports, so the country that u have mentioned for example doesnt pay the tax, doesnt libya or egypt pay the tax on the goods so what difference does it make?

Yes, thats assuming that tariffs (duty/ tax) is cheaper between libya and the uk, and trade is free/lower between egypt and libya. So overall, taking in all the costs, it would be cheaper to go through libya, rather than straight to egypt.

Reply 31

clown100

yup that makes more sense now, but then the tax is imposed by egypt and libya on imports, so what difference would it make to you to export as u dont pay the taxes?

The book says: Traders will try to IMPORT goods to the member of the lowest tariff and then export to other members.
Online defenition says: Entry, into a low-tariff member of a free trade area, of IMPORTS intended for a purchaser in its higher-tariff partner.

Dont understand either, and ur example mentioned me exporting to member with lowest tariff, and then exporting to member who i actualy wanted to send to and this would be free due the FTA.

So Confused.com wow

(edited 11 years ago)

Reply 32

tarek1

Original post by clown100

yup that makes more sense now, but then the tax is imposed by egypt and libya on imports, so what difference would it make to you to export as u dont pay the taxes?

The book says: Traders will try to IMPORT goods to the member of the lowest tariff and then export to other members.
Online defenition says: Entry, into a low-tariff member of a free trade area, of IMPORTS intended for a purchaser in its higher-tariff partner.

Dont understand either, and ur example mentioned me exporting to member with lowest tariff, and then exporting to member who i actualy wanted to send to and this would be free due the FTA.

So Confused.com wow

Im assuming that trade between libya and egypt is cheaper.

OK, i'll give another example. I want to export a product to spain, but lets say spain imposed a high tariff of 10% for uk goods, and trade between france and spain is 2%, and trade between uk and france is 3%. So overall it would be better to export to france then spain of a total of 5% duty, rather than straight to spain of 10% duty.

However, as you should know, spain and france are part of the EU's single market, so this would actually occur.

Reply 33

clown100

yea i understand that now brilliant explanation, however the duty is paid by the person receiving the imports right not by you, so it doesnt make a difference if u expoert directly to spain as u arent paying any duty?

Reply 34

tarek1

Original post by clown100

yea i understand that now brilliant explanation, however the duty is paid by the person receiving the imports right not by you, so it doesnt make a difference if u expoert directly to spain as u arent paying any duty?

yes, in most cases, the importer would pay the duty, or if i export goods, then the company may add this on to the price of that good. So for cars, BMW would price the car in the uk with the tax in mind, depending on whether they want to absorb the tax or not.

Reply 35

clown100

yeap, but then why trade reflection as if i am not paying the taxes what is the point of me reflecting trade through france in order to get to spain, wouldnt i just export to spain as i am not paying any taxes so it is pointless for me to redirect trade through countries?

Reply 36

tarek1

Original post by clown100

yeap, but then why trade reflection as if i am not paying the taxes what is the point of me reflecting trade through france in order to get to spain, wouldnt i just export to spain as i am not paying any taxes so it is pointless for me to redirect trade through countries?

Thats true. But if I own a company that needed to import timber, then it would be better to import through a country that has lower tariffs. I think also, they would need to be price competitive, so if there is an opportunity to lower costs, then they would.