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Ireland is a small open economy which relies very heavily on international trade - Leaving Cert Economics - Question b - 2009
Question b
Ireland is a small open economy which relies very heavily on international trade. (i) Discuss the importance of international trade to the Irish economy. (ii) Are ... show full transcript
Worked Solution & Example Answer:Ireland is a small open economy which relies very heavily on international trade - Leaving Cert Economics - Question b - 2009
Step 1
Discuss the importance of international trade to the Irish economy.
Answer
International trade is vital for the Irish economy for several reasons:
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Greater Standard of Living / Increased Wealth:
Trade enhances the standard of living by enabling greater access to a variety of goods and services. It increases Gross National Product (GDP), allowing the purchase of a wider array of products. -
Greater Choice of Commodities / Commodities Not Produced in Ireland:
Through trade, Ireland benefits from imports that might not be available domestically. This is crucial for essential raw materials that the country lacks, thus driving imports to meet local demand. -
More Competitive Prices of Goods and Services:
International trade fosters competition which can lead to lower prices. Consumers in Ireland benefit from competitive pricing as companies strive to offer better deals. -
Employment / Investment Opportunities:
Expansion in trade sectors creates job opportunities. A healthy trading environment encourages confidence among investors, stimulating economic growth and job creation. -
Companies Benefit from Economies of Scale:
Trade enables firms to specialize in their production. It allows companies to scale up their operations, reducing costs and improving efficiencies via larger production runs. -
Allows for the Sale of Surplus / Excess Domestic Output:
Trade provides a platform for Irish companies to sell surplus products internationally, maximizing potential revenues and reducing waste. -
More Efficient Use of Resource World Resources:
By engaging in international trade, Ireland can utilize its resources more effectively, benefiting from specializations that exist in other countries.
Step 2
Are there any economic justifications for a government intervening in order to restrict international trade? Outline reasons for your answer.
Answer
Yes, there are several economic justifications for government intervention in international trade, including:
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To Create/Protect Employment:
Governments may restrict imports to support domestic industries and protect local jobs that could be lost due to foreign competition. -
Protect Infant Industry:
New or developing industries may need protection from foreign competition until they establish themselves, allowing them to grow without being overshadowed by more established foreign firms. -
Strategic Purposes:
Certain industries, deemed strategic for national security, may require protection to ensure that they remain viable and can supply essential needs. -
To Increase Government Revenue:
Tariffs on imports generate revenue for the government, which can be used for public services or initiatives, helping to boost the domestic economy. -
Protect Against Foreign Competition:
Measures such as tariffs or quotas can help domestic producers compete more effectively against international rivals. -
Retain Wealth within the Country / Protect the Balance of Payments:
By limiting imports, governments can help maintain a favorable balance of trade, keeping money within the local economy. -
Prevent ‘Dumping’:
Restrictions may be placed to stop foreign companies from undervalued sales which can undermine local businesses by selling goods below cost.