International Trade And The Uk - 4694 Words

LO1 1.1 International trade is the exchange or trade of merchandise, capital and services across the world. For many countries, these exchanges can represent a very important share of their GDP (Gross Domestic Product). Open and closed economies are different in the way they manage their exchanges on the international market. An example of an open economy is the UK; the UK allows the import and export of products. In comparison, a country such as Brazil is a largely closed economy that in the majority does not allow exports and imports, they instead produce their own products for their population to use and consume. For an open economy such as the UK having international trade promotes competition and avoids monopolies domestically. This†¦show more content†¦The UK can purchase products and raw materials from other countries. The businesses in the UK are able to get their goods from foreign suppliers for cheaper prices than they can from domestic suppliers. This will then make the suppliers in the UK lower their prices. Being an open economy also means that people from foreign countries can come to the UK and open their own business and start trading (Gabriele Giudice, 2012). The Malaysian conglomerate Sime Darby offered to buy New Britain Palm Oil and because they are offering to buy a company in the UK they can bring palm oil into the UK. Palm oil has a high demand so buying this company will enhance the GDP in the UK and also create jobs. 1.2 Comparative advantage is when an individual or company is made to produce services or goods at a lower opportunity cost than other individuals or companies. Opportunity cost is what you give up when you make a certain choice. When you make a decision you are valuing one decision over another and that decision that you did not choose is your opportunity cost. Absolute advantage is when a business, person or country is able to produce services or goods at a lower cost per unit than any other entity can produce that same unit (MacKenzie, 2010). Terms of trade are a country’s export value relative to that of its imports. The terms of trade are calculated by dividing the value of exports by the value of the imports then this answer is multiplied