Economics A-level Edexcel - Theme 4: A global perspective

Define globalisation

The growing interdependence of countries and the rapid rate of change it brings about

What does OECD stand for and what does it do?

The Organoisation of Ecnomic Co-operation and Development it promotes policies to improve economic and social well-being worldwide, focusing on free market principles and democratic practices

What are five factors that contribute to globalisation

Improvements in transport infrastructure and in IT/ communications, trade liberalisation, international financial markets, TNCs

How does trade liberalisation improve globalisation?

Reduced protectionism has made is cheaper and more feasible to trade

How do international financial markets improve globalisation?

Provide the ability to raise money and move money around the world, which is necessary for international trade

What does TNC stand for?

Transnational corporation

What is a bilateral trading agreement?

A trading agreement between one single country to another, or between a trading bloc and a country

What is a multilateral or plurilateral trading agreement?

A trading agreement between atleast three countries

What are five limitations (assumptions) to the theory of comparative advantage?

Assumes: no transport costs, costs are constant, goods are homogenous, factors of production are perfectly mobile, countries have good terms of trade

What four factors influence patterns of trade?

Comparative advantage, emerging economies, trading blocs and trading agreements, relative exchange rates

What is the calculation for Index of terms of trade?

Index of terms of trade = (Index of export prices/ Index of import prices) x 100

Define terms of trade

The ration between average export prices and average import prices

Why is terms of trade measured in the form of an index?

This is because it is calculated from the weighted average of thousands of different export and import prices

When do terms of trade improve?

When its value increases so when export prices rise relative to import prices