4.1. International Economics

Flashcards about International Economics

What does globalisation refer to?

Globalisation refers to the growing interdependence of countries and the rapid rate of change it brings about.

According to the OECD, what does globalisation involve?

The ‘geographic dispersion of industrial and service activities, for example research and development, sourcing of inputs, production and distribution and the cross border networking of companies, for example through joint ventures and the sharing of assets’.

What movement happens to achieve globalisation?

movement towards free trade of goods and services, free movement of labour and capital and free interchange of technology and intellectual capital.

Name factors contributing to globalisation.

Improvements in transport infrastructure and operations, Improvements in IT and communication , Trade liberalisation and reduced protectionism, International financial markets , TNCs (large companies operating around the world)

List impacts of globalisation on Consumers

Consumers have more choice, It can lead to lower prices, Leads to rise in prices since incomes are rising, Consumers worry about the loss of culture.

What are some effects to workers during globalisation?

Some people have gained whilst others have lost, Increased migration may affect workers, International competition has led to a fall in wages, TNCs tend to provide training for workers and create new jobs, Those working in sweatshops will see poor conditions and low wages

What are some effects to Producers during globalisation?

Firms are able to source products from more countries and sell them in more countries, They are able to employ low skilled workers much cheaper in developing countries, Firms who are unable to compete internationally will lose out.

What are some effects to governments during globalisation?

The government may be able to receive higher taxes, TNCs also have the power to bride and lobby governments, If the government uses the correct policies, they can maximise the gains and minimise the losses.

What are some effects to the environment during globalisation?

The increase in world production has led to increased demand for raw materials , Increased trade and production has also led to more emissions, globalisation means the world can work together to tackle climate change and share ideas and technology.

What happens to economic growth due to globalisation

Globalisation increases investment within countries,t TNCs may bring world class management techniques and technology, Trade will increase output since it allows exploitation of comparative advantage, The power of TNCs can cause political instability, Comparative cost advantages will change over time

What does the theory of comparative advantage state?

Countries find specialisation mutually advantageous if the opportunity costs of production are different . If they are the same, there will be no gain from trade.

Define Absolute advantage.

Exists when a country can produce a good more cheaply in absolute terms than another country.

Define Comparative advantage.

Exists when a country is able to produce a good more cheaply relative to other goods produced.

What will affect whether trade takes place?

The terms of trade between the countries

What are some advantages of specialisation and trade?

Comparative advantage shows how world output can be increased, Trading and specialising allows countries to benefit from economies of scale , Different countries have different factors of production , Trade enables consumers to have greater choice, Trade also means there is greater competition, Countries which isolate themselves for political reasons have found that their economies tend to stagnate.

What are some disadvantages of specialisation and trade?

Trade can lead to over-dependence, It can cause structural unemployment, , The environment will suffer due to the problems of transport, Countries may suffer from a loss of sovereignty, They may see a loss of culture

What are the factors influencing the pattern of trade?

Comparative advantage, Emerging economies, Trading blocs and bilateral trading agreements, Relative exchange rates

What does the terms of trade measure?

The rate of exchange of one product for another when two countries trade.

What does 'Movement in the terms of trades is said to be favourable?'

If the terms of trade increase as the country can buy more imports with the same level of exports.

When is movement in 'terms of trade' said to be unfavourable?

If they decrease, when export prices fall or import prices rise.

Define Trade creation.

Is when a country moves from buying goods from a high cost to a lower cost country

Define Trade diversion.

Is when they go from low cost to a higher cost.

What are the main goals of the WTO?

To bring about trade liberalisation and to ensure countries act according to the trade agreements they have signed.

Reasons for restrictions on free trade

Infant industry argument, Job protection, Protection from potential dumping, Protection from unfair competition, Terms of trade, Danger of over specialisation

Types of restrictions on free trade

Tariffs, Quotas, Subsidies to domestic products, Non-tariff barriers

What are the components of the balance of payment?

The current account, The capital and financial accounts

Examples of Medium term causes of deficits and surpluses.

As a country loses its comparative advantage, people will transfer their purchases to other countries and the UK will need to switch resources to production of other things. Similarly, the growth of cheap imports from countries like China has caused a substitution effect.

Examples of Short term causes of deficits and surpluses.

It can be caused by high levels of consumer demand , Moreover, it can be caused by a strong exchange rate which reduces the UK price of imports, A high level of relative inflation will decrease exports since it will increase their price compared to goods produced by other countries.

Give examples of long term causes of deficits and surpluses:

A lack of capital investment means firms use older and more out of date technology. This contributes to a lack of productivity. Deindustrialisation in the UK has led to a decrease in the relative importance of industry and manufacturing in the economy, Countries with a large amount of natural resources tend to export more

Give examples of demand side policies

Monetary or fiscal policy can be used to reduce AD. This reduces income so reduces demand for imports. It should be effective since there is high income elasticity for imports.

Name some expenditure switching policies.

Tariffs or quotas will reduce the attractiveness of imports. They could attempt to control inflation, They could also devalue/depreciate the pound as this will makes exports cheaper and imports dearer.

Give examples of what may influence supply side policies.

They could also use a range of measures to improve productivity and efficiency or improve quality. This could include competition policy, improving labour or improving infrastructure.

Define exchange rate.

The purchasing power of a currency in terms of what it can buy of other currencies.

What is a competitive devaluation?

This is where a country deliberately intervenes in foreign exchange markets to drive down the value of their currency to provide a competitive boost to their exporting industries.

What happens if a country is competitive?

A country will experience current account surpluses