4.1 + 4.2

What is the definition of globalisation

The increasing integration of the worlds local regional and national economies into a single international market

What are the causes of globalisation

Transport, technology, trade liberalisation, MNC

How has globalisation impacted consumers

Increased choice, lower prices or loss of culture

How has globalisation impacted workers

Job loss/gain, increase migration, wages

How has globalisation impacted producers

Reduce risk, lower cost of production

How has globalisation impacted the government

Receive higher taxes (MNC), MNC could bribe/lobby leading to corruption

How has globalisation caused economic growth

Increase investment, technology and trade

What is an absolute advantage

When a country can produce a good more cheaply in absolute terms than another country

What is a comparative advantage

A country should produce the goods/services that have the lowest opportunity cost

What are the assumptions of the comparative advantage theory

It assumes goods are homogenous, no costs of transport, forgets diseconomies of scale

What are advantages of a comparative advantage

Greater choice, competition, economies of scale

What are the disadvantages of having a comparative advantage

Over dependence, structural unemployment, loss of culture

What factors influence the pattern of trade

Comparative advantage, emerging economies, trading blocs and bilateral trading agreement, relative exchange rates

What does the terms of trade measure

Ratio of a countries export prices to import prices

How to calculate terms of trade

Export price index / import price index x100

What factors influence a counties terms of trade in the short run

Exchange rates, inflation and changes in demand and supply

What factors influence a counties terms of trade in the long run

Productivity and changing incomes

What does the impact of a change to the terms of trade depend on

The cause, it is more important to look at revenue rather than price (eg if deterioration is caused by an increase in international competitiveness this will be beneficial)

What are the different types of trading blocs

Free trade areas, customs union, common market and monetary union

What is a free trade areas

Two of more counties agree to eliminate trade barriers on goods coming from other members

What is a customs union

Free trade area in addition to a common external tariff against non members

What is a common market

Free trade areas, customs union + free movement of labour and capital

What is a monetary union

Free trade area, customs union, common market and a single currency

What are the advantages of free trade

Specialisation, competition, jobs

What are the disadvantages of free trade

Distort world trade, reduction in competition, loss of resources (can increase regional inequalities), might not cover lots of goods

What is the distinction between trade creation and diversion

Trade creation is moving from buying goods from high to low cost countries trade diversion is the opposite

What is an example of trade creation

Shifting from domestic producers to efficient French producers when we joined the EU

What is an example of trade diversion

Switching from buying New Zealand butter to European butter

What are the aims of the WTO

Encourage trade liberalisation and ensure counties act according the trade agreements they have signed

What are restrictions on free trade

Infant industry argument, job protection, dumping, over specialisation

What is the infant industry agreement

industries just being established have a high AC in comparison to an already established one - governments need to protect them until they can compete in the international market

What is dumping

When a country sells surplus goods to other areas of the world at very low prices

What are non tariff barriers

Embargo, import licensing, legal standards

What is a trade embargo

Total ban on imported goods

What is the impact of trade barriers on consumers

Higher prices and less choice

What is the impact of trade barriers on producers

Can sell more goods at a higher price but may suffer if there are controls on imports needed for production

What is the impact of trade barriers on workers

Closing inefficient firms could be better for workers in the long run

what components make up the BOP

the current account

the capital account

the financial account

what is the financial account

transactions that. result in a change of ownership and financial assets and liabilities between a countries residents and non residents

what does the financial account include

FDI, portfolio investment, banking flows, changes to the value of gold reserves and foreign currency

what is FDI

the flow of money to purchase part of a foreign firm (10% or more)

What components make up the current account

Primary income, secondary income, trade in goods, trade in services

short term causes of a current account deficit

high level of relative inflation, strong exchange rate and high levels of consumer demand

what is a medium term cause of a current account deficit

a country loosing its comparative advantage

what are long term causes of a current account deficit

lack of capital investment, deindustrialisation, limited natural resources

what stat shows the difference between UK and Germany in productivity

Germany has higher 35% productivity per hour worked than the UK

what are expenditure switching policies to reduce current account deficit

depreciate the pound, tariffs, control inflation

what are other ways to reduce current account deficit

monetary or fiscal policies to reduce AD or supply side policies