International Trade and the Global Economy

free trade

countries or businesses can trade without any restrictions ( e.g regulations, tariffs or barriers )
with no government intervention

free trade agreements

a free trade area where there are groups who collectively agree on free trade

tariff

a tax imposed by a government on goods and services imported from other countries that serves to increase the price and make imports less desirable, or at least less competitive, versus domestic goods and services

Advantages of free trade agreements

free trade is reciprocated so UK businesses can sell
choice for consumers, more diverse products
cheaper products due to specialisation
increases quality of products
increased output and economic growth Di

Disadvantages of free trade agreements

unemployment in domestic businesses
businesses may increase price to make profit
more money may leave UK economy, loss of multiplier effect
trade diversion - away from countries outside agreements
more competition from domestic businesses
environmental damage

utility

enjoyment of satisfaction

globalisation

increasing interdependence of businesses and countries one each other, developing international influence

main features of globalisation

transport and containerisation
technological change
economies of scale
lower regulations and tax
less protectionism
growth of MNC /transitional Co's

what are the implications of being a member of a free trade agreement?

encourage countries to trade within the agreement ( trade diversion away from other countries ).

benefits of globalisation - developed countries

Competition lead to wider choice
Cheaper Products
Opportunities to sell abroad can lead to business growth and economics growth

drawbacks of globalisation - developed countries

more competition from abroad - bad for domestic producers and may lead to businesses cut backs or closing ---> unemployment
environment damage from transport

benefits of globalisation - developing countries

foreign imports allow cheaper products and more choice
creates jobs and skills
economic growth
injection of money into the government

drawbacks of globalisation - developing countries

competition from foreign imports
exploiting lack of regulation
capital flight ( MNC drafts overseas )

moral considerations of globalisation

child labour
materials used
unfair on small businesses ?

ethical considerations of globalisation

less regulation of environment and workers

sustainability considerations of globalisation

transport
carbon footprint
pollution
negative externalities

top 5 exports from the UK

Precious Metal Production
Aircraft parts
Motor Vehicles
Pharmaceuticals
Refined petroleum

top 5 imports from the UK

Industrial Machinery
Motor Vehicles and Parts
Electrical Machinery
Oil and Mineral Fuels
Pharmaceuticals

what are exchange rates ?

the value of price of one currency, in terms of another

what could influence exchange rate ?

Interaction of demand and supply ( market forces )
DEMAND - of a product
Consumers, producers, governments who want to buy british goods, services and financial assets
SUPPLY - of the pound
Comes from economic groups who supply pounds in exchange for another currency that they can use to buy good, currency and financial assets from other countries

factors that influence demand and supply of £s

International Competitiveness
Inflation
Interest Rates ( hot money flows )
Economic Performance - confidence, GDP, unemployment
Relative strength of trading partners’ economies
Speculation - TRADING
Political Stability
Public Debts
Current Account Deficit

when exchanging from £s to foreign currency

MULTIPLY

when exchanging from a foreign currency to £s

DIVIDE

strong pound ( Appreciates )

imports cheaper
exports dearer ( more expensive )

weaker pound ( Depreciates )

exports cheaper
imports dearer ( more expensive )

stronger pound effect on supply-demand diagram

demand shifts to the right
supply shifts to the left
so more EXPENSIVE w

weaker pound effect on supply-demand diagram

demand shifts to the left
supply shifts to the right