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MacroEconomics > 14 - The International Economy > Flashcards

14 - The International Economy Flashcards

1
Q

What is International Trade?

A

The exchange of goods and services along international borders, allowing for greater competition, and more competitive pricing in the market.

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2
Q

What are the benefits of international trade?

A

Access to new markets, more consumer choice, more competition, elastic supply, specialisation, economies of scale.

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3
Q

What are the disadvantages of International trade?

A

Domestic unemployment, less domestic demand, leakage from circular flow, loss of industry, domestic suppliers lose market share.

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4
Q

What are the barriers to trade employed by countries?

A

Tariffs, Quotas, subsidies, embargoes.

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5
Q

What are the main reasons for trade barriers?

A

Response to allegations of export dumping, response to a persistently large trade deficit, providing employment position in key industries, protect fledgling sectors, raise tax revenues, response to impact of an economic downturn.

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6
Q

What are the characteristics of a free trade area?

A

No tariffs between members, no external tariff, negotiate own trade deals.

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7
Q

What are the characteristics of a customs union?

A

No tariffs, no border checks, common external tariff, trade deals for whole customs union.

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8
Q

What are the characteristics of a single market?

A

No tariffs, no border checks, freedom of movement of goods and people, common rules and regulations.

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9
Q

What is the impact of a free trade diagram on the domestic market?

A

In equilibrium at PE, QE. World suppliers enter market because of free trade policy.

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10
Q

What happens to domestic demand, and domestic supply on a free trade diagram?

A

Increase in Dom demand, decreased market price from PE to P1. Decreased domestic supply. Excess demand from Q2-Q1.

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11
Q

What are the evaluations of international trade?

A

Benefits of trade depend on specialisation and exchange, short run may see domestic unemployment, long run may see better allocation of resources, depends on trade deal, and trade balance.

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12
Q

What are the benefits of providing state aid for industries?

A

Can secure investment and company operations, helps struggling industries.

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13
Q

What are the costs of providing state aid for industries?

A

Can give some industries unfair advantages.

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14
Q

What are the economic consequences of a tariff war between the US and China?

A

Could cause a decline in real exports, and GDP. Weaker demand for other exports, US imports from China fell significantly, some tariffs have been passed onto consumers.

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15
Q

What is Globalisation?

A

The process of increasing integration of the world’s economies.

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16
Q

What are the causes of globalisation?

A

Improvements in information technology, developments in transport, service industry growth has made it easy to transport around the world.

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17
Q

What are the characteristics of globalisation?

A

Growth of international trade, reduction of trade barriers - trade liberalisation. Greater international mobility of capital and labour. Increase in the power of TNC’s. Decrease in governmental power.

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18
Q

What are less developed economies?

A

Countries considered behind others in terms of their economy, human capital and infrastructure.

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19
Q

What are the consequences of globalisation in less developed economies?

A

Has caused low paid workers in sweatshops, farmers in developing countries could be forced to grow GM crops, growing dominance of US corporate culture.

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20
Q

What are more developed countries?

A

Countries with a high degree of economic development, high average income per head, high standards of living.

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21
Q

What are the consequences of globalisation for more developed economies?

A

MNC’s could reduce wages and living standards in developed economies. New jobs could be highly skewed or low paid, unskilled. Spread of technology makes more people better off.

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22
Q

What is the dependency theory of trade?

A

Developing economies possess little capital because the system of world trade has been organised by developed economies to their own advantage, so the terms of trade are moved in favour of industrialised countries.

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23
Q

What do developing economies have to do in order to develop?

A

Export more to buy the same quantity of capital goods for energy vital for development. The movement of the terms of trade in favour of developed economies has raised levels of income.

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24
Q

How has globalisation in the service sector changed?

A

After call centre employment rose, locating in high unemployment regions in the UK, they then moved to Asia and Eastern Europe.

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25
Q

What has happened to the ‘Death of distance’?

A

Distance is less of a barrier for businesses and consumers, due to globalisation.

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26
Q

Which factors encourage the location of call centres?

A

Low wages in developing economies, reliable and cheap telecommunications, 24 hour shift employment, workers are fluent in English.

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27
Q

What does globalisation involve?

A

Moving capital to lower cost labour - more than it allows migration to more developed countries.

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28
Q

What has globalisation reduced?

A

The power of national governments in smaller countries, to control multinational firms operating within their boundaries. They have less freedom to introduce tariffs.

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29
Q

What does comparative advantage argue?

A

Argues that countries can benefit from trading with each other by focusing on making the things they’re best at making, buying the things they’re not good at.

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30
Q

What are the advantages of comparative advantage?

A

Can justify globalisation, as countries can have higher material outcomes. Productivity gains by specialising their economies, increases efficiency of production by focusing on these tasks.

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31
Q

What are the disadvantages of comparative advantage?

A

Developing countries may be kept at a relative disadvantage, may promote unfair of poor working conditions, can lead to resource depletion, risk of over-specialisation.

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32
Q

What is an example of comparative advantage?

A

High powered executives may consider hiring an assistant to answer their emails. Even if they could do this faster themselves, it’s more productive for them to spend time of managerial work, than secretarial work.

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33
Q

How is comparative advantage measured in opportunity cost?

A

What a country gives up when it increases the output of a country by 1 unit.

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34
Q

What happens when a country possesses an absolute advantage in both products it produces?

A

Its’ comparative advantage lies in producing the good where its’ absolute advantage is greater.

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35
Q

What happens when a country has an absolute disadvantage in both goods it produces?

A

It possesses a comparative advantage in the product which it has less of an absolute disadvantage in.

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36
Q

What happens when one country has an absolute advantage in goods?

A

Complete specialisation with comparative advantage doesn’t result in a net output gain. The output of one good rises, output of the other good falls.

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37
Q

When does a country have an absolute advantage?

A

If it can produce more of a good with a given amount of resources than another country.

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38
Q

What is production without specialisation?

A

If countries devote half their total resources to each activity.

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39
Q

What other factors matter to translate into trade gains?

A

Administration and transport costs, suitable demand conditions.

40
Q

What are the assumptions which underpin comparative advantage?

A

Perfect occupational mobility - resources used in one industry can be switched into another without loss of efficiency, constant returns to scale - doubling the inputs in each country leads to a doubling of total output.

41
Q

What are the inputs of a comparative advantage diagram?

A

Germany’s PPF has a smaller slope, meaning Germany has a lower opportunity cost than the UK when producing cars. The UK has a steeper slope, meaning it has a lower opportunity cost.

42
Q

What are the impacts of an absolute advantage diagram?

A

Spain has absolute advantage over Belgium, so can produce more of both items with the same resources, Belgium has comparative advantage in Bakery items.

43
Q

What is Protectionism?

A

The act of imposing trade barriers to protect the income of domestic producers.

44
Q

What are the benefits of protectionism?

A

Job creation and protection, protect industries such as infant industries, allowing domestic start up firms to survive or develop comparative advantage. Diversify the economy - structural change. Source of government revenue.

45
Q

What are the disadvantages of protectionism?

A

Trade War - Response of other countries to our actions. Inefficient allocation of resources - countries should specialise and produce what they’re good at.

46
Q

What is the impact of protectionism on infant industries?

A

Increasing returns to scale - the more a country specialises in a particular industry, it becomes more productively efficient. Good for infant industries to develop and achieve full economies of scale.

47
Q

What is the impact of protectionism of agricultural efficiency?

A

Monoculture erodes efficiency, destroys comparative advantage which existed before specialisation took place.

48
Q

What does strategic trade theory argue?

A

That comparative and competitive advantage aren’t natural. and governments try to create comparative advantage by nurturing strategically selected industries.

49
Q

What does strategic trade theory justify?

A

Protecting industries while competitive advantage is built, arguing that protectionism can prevent exploitation by a foreign monopoly.

50
Q

How do governments in developed economies use strategic policy to help declining industrues?

A

Trade adjustment assistance, other aid to workers and firms in these industries. Subsidies on exports or taxes on imports and investment, to protect industries from foreign competition.

51
Q

What is the impact of protectionism on employment?

A

Trade unions argue that import controls are necessary to prevent multinational firms shifting capital to low wage developing economies, exporting output back to countries where capital was moved.

52
Q

What are the advantages of globalisation?

A

Promotes free trade, technological change, economies of scale, economic growth increases.

53
Q

What are the disadvantages of globalisation?

A

Pollution, as a negative externality, loss of local jobs, profits can leak out of economy, countries can become dependent on FDI.

54
Q

What are patterns of trade?

A

The changes in a country’s imports and exports throughout periods of time.

55
Q

Which factors change the patterns of trade?

A

Absolute and comparative advantage, protectionism, trading blocs, trade creation, exchange rates, government intervention, globalisation, external shocks, economic development, exploitation of resources.

56
Q

How does comparative advantage affect the patterns of trade?

A

A country able to produce a good at a lower opportunity cost.

57
Q

How do the exchange rate and supply chains affect the pattern of trade?

A

Changes in the exchange rate make it cheaper to import from another country, growth of global supply chains.

58
Q

How do trading blocs and technological advancements affect the patterns of trade?

A

Allowing countries to freely trade with one another contributes to trade creation. Better quality goods to export and import.

59
Q

How does productivity of workers affect patterns of trade?

A

Employees able to produce high quality goods for countries to export and import.

60
Q

What are the top 5 global trade blocs?

A

EU, NAFTA, ASEAN, MERCOSUR, BRICS.

61
Q

What is a tariff?

A

A tax on imports designed to raise the price of them - making domestically produced goods more price competitive.

62
Q

What is an example of a targeted tariff?

A

EU - 25% tariffs on US goods such as orange juice, bourbon, and Harley Davidsons.

63
Q

Which countries have the highest number of harmful tariffs in force?

A

USA, India, Russia, Japan, UK, Pakistan, China, Australia, Indonesia, Vietnam.

64
Q

Who are the winners of tariffs?

A

Government - Tariffs increase price from P1 to P2. Domestic producers - Inefficient domestic producers benefit from a gain to producer surplus.

65
Q

Who are the losers of tariffs?

A

Consumers - As prices rise, reduction in consumer surplus is greater than the increase in producer surplus. Importers - Quantity of imports gone from Q1 to Q2.

66
Q

What are the advantages of tariffs?

A

Protects domestic firms, due to increase in producer surplus, increase in revenue and sales market share. Stops dumping of cheap imports, tax revenue for government.

67
Q

What are the disadvantages of tariffs?

A

Higher prices, less choice for consumers, loss of imports, risk of trade war.

68
Q

How much did the UK export to the EU in 2020?

A

£251 Billion, 48.4% of total UK exports.

69
Q

How much did the UK import from the EU in 2020?

A

£301 Billion, 50.4% of total imports.

70
Q

What was the size of the UK’s trade deficit with the EU in 2020?

A

£49.4 Billion.

71
Q

What % of UK exports went to the EU in 2002 compared to 2020?

A

55% in 2002, 42% in 2020.

72
Q

What % of UK imports were from the EU in 2002, compared to now?

A

58% in 2002, 50% now.

73
Q

Since when has the UK had a trade deficit with the EU?

A

Since 1999.

74
Q

Who are the UK’s top trading export partners?

A

USA, Germany, Netherlands, Ireland, France.

75
Q

Who are the UK’s top trading import partners?

A

USA, Germany, China, Netherlands, France.

76
Q

What are the examples of degrees of international economic intergration?

A

Preference areas, Free trade areas, customs unions, common external tariffs, common markets, economic unions, political unions.

77
Q

What are preference areas?

A

Countries agree to levy reduced tariffs on certain trade, such as the EU’s association agreements.

78
Q

What are free trade areas?

A

Member countries abolish tariffs on mutual trade, each partner determines its’ own tariffs on trade with non member countries. Traders try to import goods into the partner with the lowest external tariff.

79
Q

What are Customs unions?

A

Two main features of a customs union are abolishing tariffs, and a common external tariff.

80
Q

What is a common market?

A

Customs unions with additional provisions to encourage trade and integration through mobility of factors of production.

81
Q

What do economic unions do?

A

Add further harmonisation in the areas of general, economic, legal, and social policies, and development of union wide policies.

82
Q

What do political unions do?

A

The ultimate form of economic integration, involving submersion of separate nation institutions.

83
Q

What is the difference between a free trade area and a customs union?

A

Members of a free trade area are free to set their own tariffs against non-members, but custom union members can’t.

84
Q

What are the advantages of the Euro?

A

Costs decrease in transaction with countries of the Eurozone, reduction in exchange rates, increased competition, greater price transparency, ECB maintains control of interest rates.

85
Q

What are the disadvantages of the euro?

A

No control over interest rates and cost of borrowing, more emphasis placed on fiscal policy, introductory costs, divergences in trade area.

86
Q

What are the benefits of trading in the EU?

A

Greater competition, removal of trade barriers, reduction of business costs, greater business efficiency, reduces anti-competitive practices.

87
Q

What are the disadvantages of EU membership?

A

Cost - UK membership cost £15 Billion gross. Inefficient policies - 40% of EU spending goes on common agricultural policy. Net migration - Free movement of labour, causing overcrowding.

88
Q

What is the role of the World trade organisation?

A

Organise talks among member states to reduce import controls, came about because of the blame of protectionist policies before WWII.

89
Q

What has the WTO been successful at?

A

In reducing import controls on manufactured goods.

90
Q

What have the WTO been less successful at?

A

Securing agreement to reduce tariffs and quotas on trade in services and agricultural goods.

91
Q

What is a quota?

A

Physical limit on the amount of imports that can be brought into a particular country.

92
Q

What are the impacts of imposing quotas?

A

Leads to a fall in imports, domestic suppliers gain more revenue. Price rises to P2, domestic suppliers, supply more Q3 to Q4. Consumers pay a higher price.

93
Q

Why are governments not impacted directly from Quotas?

A

There is no tax income.

94
Q

What are the impacts on consumer surplus?

A

Net welfare loss to society, increase in producer surplus, decline in consumer surplus.

95
Q

What happens to world exporters?

A

They make less revenue - unless demand is very inelastic, meaning increase in price is greater than fall in quantity.

MacroEconomics (15 decks)

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