3.1

Question 1

What is a nominal value?

Answer 1

The current value of a measure at the time of recording. Not adjusted for changes in price.

Question 2

What is a real value?

Answer 2

The relative value of a measure over time. Adjusted for changes in price and for inflation.

Question 3

What is the equation for finding an index number?

Answer 3

Price value of year over price value of base year X100

Question 4

Why are index numbers used?

Answer 4

To make quick and easy comparisons of values over time which easily show percentage increase/decrease compared to a base year.

Question 5

How do you calculate real values from nominal values?

Answer 5

Nominal value over price level X100

Question 6

What are the BRIC countries?

Answer 6

Refers to Brazil, Russia, India, and China. At the time these were the emerging economies with the greatest potential.

Question 7

What is trade liberalisation?

Answer 7

The removal or reduction of restrictions or barriers on the free exchange of goods between nations

Question 8

What is protectionism?

Answer 8

Government policies which restrict non-domestic trade or trade from outside of a bloc to protect a country’s industries. Usually done via tariffs and import quotas.

Question 9

Which organisation regulates world trade?

Answer 9

WTO

Question 10

What has happened due to increasing specialisation by country?

Answer 10

Deindustrialisation of the UK has moved the manufacturing sector to China and India who have now specialised in production due to lower labour costs. Their share of world trade has increased and the UK now specialise in services such as finance.

Question 11

What is comparative advantage?

Answer 11

When one country can produce a good at a lower opportunity cost than another.

Question 12

What is absolute advantage?

Answer 12

When one country can produce more of a good than another with the same resources/inputs.

Question 13

What are the advantages of specialisation in the production of goods and services to trade?

Answer 13

Increased competition so lower average costs. Greater world output so increased economic welfare. Outward shift to the PPF curve. Increased supply of goods to choose from.

Question 14

What are disadvantages of specialisation in the production of goods and services to trade?

Answer 14

Less developed countries might use their nonrenewable resources too quickly so they might run out. Countries could become too dependent on the export of one commodity.

Question 15

What is free trade?

Answer 15

The act of trading between nations without protectionist barriers such as tariffs quotas or regulations.

Question 16

What are three advantages of trade liberalisation and free trade?

Answer 16

Countries can exploit their comparative advantage leading to higher output. Increased economic efficiency by establishing a competitive market. Trade creation due to fewer barriers leading to increased consumption.

Question 17

What is FDI?

Answer 17

The flow of capital from one country to another.

Question 18

How is FDI linked to growth?

Answer 18

FDI can help create employment, encourage innovation, and provide low income countries with funds to invest and develop.

Question 19

What is trade creation?

Answer 19

When a country consumes more imports from a low-cost producer and fewer from a high cost producer.

Question 20

What is trade diversion?

Answer 20

When trade shifts to a less efficient producer.

Question 21

How can trading blocs lead to trade diversion?

Answer 21

Protectionist barriers are often imposed on countries who are not members of the bloc so trade is diverted from producers outside the bloc producers within the bloc.

Question 22

What are the different types of trading bloc?

Answer 22

Preferential trade area, free trade area, customs union, common market, economic union.

Question 23

What is a preferential trade area?

Answer 23

Reduced but not eliminated barriers to trade among members.

Question 24

What is a free trade area?

Answer 24

Where countries agree to trade goods with other members without protectionist barriers though they still maintain independent external barriers. This allows members to exploit their comparative advantages.

Question 25

What is a free trade area?

Answer 25

Where countries agree to trade goods with other members without protectionist barriers though they still maintain independent external barriers. This allows members to exploit their comparative advantages.

Question 26

What is a customs union?

Answer 26

No barriers between members and an established common trade policy with the rest of the world for example a common external tariff.

Question 27

What is a common market?

Answer 27

No barriers between members, a common external tariff, and free movement of capital and labour across borders.

Question 28

What is a common market?

Answer 28

No barriers between members, a common external tariff, and free movement of capital and labour across borders.

Question 29

What is an economic union?

Answer 29

No internal barriers, common external barriers, free movement of capital and labour, and a uniform set of economic policies.

Question 30

What is an economic union?

Answer 30

No internal barriers, common external barriers, free movement of capital and labour, and a uniform set of economic policies.

Question 31

What is consumer surplus?

Answer 31

The difference between a price a consumer is willing to pay for a product and the price they actually pay.

Question 32

What is producer surplus?

Answer 32

The difference between the price a producer is willing to supply for a product and the price actually received for the product.

Question 33

What are some arguments against protectionism?

Answer 33

Market distortion and economic inefficiency as protectionism can be an ineffective way of supporting domestic growth. Import tariffs push up prices for consumers and penalise foreign producers leading to allocative inefficiency of resources. Reduces consumer choice. Retaliation from countries can lead to a tariff war. Tariffs hit those with the lowest incomes hardest as they placed on products that lower income households spend a larger proportion of their income on.

Question 34

What are some arguments for protectionism?

Answer 34

Protect domestic infant industries. Safeguards jobs in industries threatened by cheaper imports such as steelworkers. Reduces trade deficits (importing more than they export) by improving balance of payments to get closer to equilibrium.