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Topic 4 - Economics > 4-1 International Economics > Flashcards

4-1 International Economics Flashcards

1
Q

What is globalisation?

A
  • Increasing interdependence and interconnectedness of countries over a period of time.
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2
Q

What are the factors that contribute to globalisation?

A
  • Improvements in transport infrastructure and operations
  • Improvement in IT and communication
  • Trade liberalisation
  • International financial markets
  • TNC’s
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3
Q

What are the impacts of globalisation on consumers?

A
  • More choice
  • Lower prices as firms take advantage of comparative advantage
  • Higher prices since incomes rise so increase in demand
  • Loss of culture
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4
Q

What are the impacts of globalisation on workers?

A
  • Job losses
  • Lower wages due to wage migration
  • International competition decreases wages to meet costs
  • Wages for highly skilled workers increases as there is more demand for their work
  • TNC’s provide training
  • Sweatshops provide poor working conditions
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5
Q

What are the impacts of globalisation on producers?

A
  • Firms can diversify their suppliers reducing risk.
  • Employ comparative advantage.
  • Firms who cannot compete internationally will lose out.
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6
Q

What are the impacts of globalisation on the government?

A
  • Tax revenue will increase
  • Could lose out due to tax avoidance
  • Bribe and lobbying
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7
Q

What are the impacts of globalisation on the environment?

A
  • Increased utilisation of raw materials
  • More emissions
  • World can work together to combat climate change.
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8
Q

What are the impacts of globalisation on economic growth?

A
  • Increases investment
  • TNC’s spread knowledge
  • Trade will increase output since it benefits from comparative advantage
  • Political instability
  • Comparative cost advantages will change over time.
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9
Q

What is comparative advantage?

A
  • Comparative advantage exists when a country is able to produce a good more cheaply relative to other goods produced.
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10
Q

What is absolute advantage?

A
  • Absolute advantage exists when a country can produce a good more cheaply in absolute terms than another country.
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11
Q

What are the assumptions of comparative advantage?

A
  • Assumes no transport costs
  • Assumes costs are constant
  • Goods are assumed to be homogenous
  • Assumes factors of production are perfectly mobile
  • Doesn’t account for trade blocs
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12
Q

What are the advantages of specialisation and trade?

A
  • World output can be increased
  • Economies of scale
  • Different countries have different factors of production
  • Greater choice
  • Greater competition
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13
Q

What are the disadvantages of specialisation and trade?

A
  • Over specialisation
  • Structural unemployment
  • Environment
  • Loss of sovereignty
  • Loss of culture
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14
Q

What are the factors influencing the pattern of trade?

A
  • Comparative advantage
  • Emerging economies
  • Trading blocs and bilateral trading agreements
  • Relative exchange rates
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15
Q

What does the terms of trade measure?

A
  • Rate of exchange of one product for another when two countries trade
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16
Q

What are the factors which influence a country’s terms of trade?

A
  • Rise in export prices or fall in import prices will cause an improvement in the terms of trade
  • In the short run, exchange rates, inflation, changes in demand and supply of imports or exports.
  • In the long run, improvements in productivity, changing incomes.
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17
Q

What are the impacts of changes in a country’s terms of trade?

A
  • If PED of exports and imports is inelastic, a favourable movement would improve the current account on the balance of payments, if inelastic then then the opposite would happen/
  • An improvement in the terms of trade is likely to lead to a fall in GDP and a rise in unemployment.
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18
Q

What are preferential trading areas (PTA)?

A
  • These are where tariff and other trade barriers are reduced on some but not all goods traded between member countries.
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19
Q

What are free trade areas (FTA)?

A
  • There occur when two or more countries in a region agree to reduce or eliminate trade barriers on all goods coming from other members. Each member is able to impose its own tariffs and quotas on goods it imports from outside the trading bloc.
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20
Q

What are customs unions?

A
  • A custom union involves the removal of tariff barriers between member and the acceptance of a common external tariff against non-members. This means that members may negotiate as a single bloc with third parties such as other trading blocs or countries.
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21
Q

What are common markets?

A
  • Occurs when member trade freely in all economic resources so barriers to trade are removed. They impose a common external tariff on imported goods from outside the markets.
22
Q

What are monetary unions?

A
  • These are two or more countries with a single currency, with an exchange rate that is monitored and controlled by one central bank or several central banks with closely coordinated monetary policy.
23
Q

What are the advantages of trading blocs?

A
  • Free trade encourages specialisation
  • Firms will be able to reach a larger customer market
  • Competition
  • More jobs
  • Increased choice
24
Q

What are the disadvantages of trading blocs?

A
  • Countries are no longer able to benefit from trade with countries in other blocs and are likely to distort world trade.
  • Reduction in competition
  • Loss of resources
  • Retaliation
  • Distract governments from the gains of signing full free trade agreements
  • Distribute gains from trade unequally
  • Limited range of goods
  • Lessen national sovereignty
25
Q

What is trade creation?

A
  • Trade is created by joining a trade union. It is when consumption shifts from a high-cost domestic producer to a low-cost partner producer.
26
Q

What is trade diversion?

A
  • Occurs where consumption shifts form a lower cost producer outside the trading bloc to a higher cost producer within it.
27
Q

What is the role of the WTO?

A
  • To bring about trade liberalisation, and to ensure countries act according to the trade agreements.
28
Q

What are the possible conflicts with the WTO?

A
  • Regional trade agreements contradict WTO’s principles.
  • Some might argue that the WTO is too powerful or that it ignores the developing countries.
29
Q

What are the reasons for restrictions of free trade?

A
  • Infant industry argument
  • Job protection
  • Protection from dumping
  • Protection from unfair competition
  • Terms of trade
  • Danger of overspecialisation
30
Q

What are the types of restrictions?

A
  • Tariffs
  • Quotas
  • Subsidies to domestic products
  • Non-tariff barriers
31
Q

What are the impacts of protectionist policies on consumers?

A
  • Higher prices
  • Less choice
32
Q

What are the impacts of protectionist policies on Producers?

A
  • More goods at a higher price
  • Controls on the imports they need for production
  • Foreign producers will lose out
33
Q

What are the impacts of protectionist policies on workers?

A
  • Little difference to employment figures
  • Create new jobs
34
Q

What are the impacts of protectionist policies on governments?

A
  • Tariff revenues
  • Can lead to an inefficient economy
35
Q

What are the impacts of protectionist policies on living standards?

A
  • Deadweight welfare loss
  • Retaliation from other countries
36
Q

What are the components of the balance of payments?

A
  • The current account, Trade in goods and services, and income and current transfers
  • The capital and financial accounts, Capital, transfers of immigrants and emigrants to and from abroad. Financial, FDI and other investments.
37
Q

What are the causes of a deficit?

A
  • Appreciation of the currency
  • Economic growth
  • More competitive
  • Deindustrialisation
  • Membership of trade union
38
Q

How could a country reduce an imbalance on the current account?

A
  • Deficit, increase income tax, reduce gov. spending.
39
Q

What is an exchange rate?

A
  • Weight of one currency relative to another.
40
Q

What are the types of exchange rate?

A
  • Floating, determined by the forces of supply and demand.
  • Fixed, determined gov. compared to other currencies.
  • Managed, combines both
41
Q

What is revaluation of a currency?

A
  • When the currency’s value is adjusted relative to a baseline such as the price of gold.
42
Q

What is appreciation of a currency?

A
  • When the value of a currency increases.
43
Q

What is devaluation of a currency?

A
  • When the value of a currency is officially lowed in a fixed exchange rate system.
44
Q

What is depreciation of a currency?

A
  • When the value of a currency falls relative to another currency.
45
Q

What are the factors influencing floating exchange rates?

A
  • Inflation
  • Speculation
  • Other currencies
  • Government finances
  • Balance of Payments
  • International competitiveness
46
Q

How can a government influence the exchange rates?

A
  • Interest rates
  • Quantitative easing
  • Foreign currency transactions
47
Q

What are the impacts of changes in exchange rates?

A
  • The current account of the balance of payments.
  • Economic growth
  • Rate of inflation
  • FDI
48
Q

What is international competitiveness?

A
  • International competitiveness is the ability of a nation to compete successfully overseas and sustain improvements in real output and living standards.
49
Q

What are the measures of international competitiveness?

A
  • Relative unit labour costs
  • Relative export prices
50
Q

What are the factors that influence international competitiveness?

A
  • Ability to attract FDI from MNC’s
  • Ability to produce or attract entrepreneurs
  • Ability to attract skilled labour from abroad
  • Unit labour costs
  • Exchange rate
  • Quantity and quality of skills possessed by a nation’s workers
  • Flexibility of labour
  • Economic stability
  • Tax policies
  • Regulation
  • Rate of innovation
  • Interest rates
51
Q

What are the benefits of being internationally competitive?

A
  • Increased exports
  • Increased price inelasticity from a reputation for high quality goods and services.
  • Increased customers.
52
Q

What are the problems of being internationally competitive?

A
  • Funds could be inefficiently allocated.
  • Decreased tax revenue if there is a lower tax rate.
  • Infant industries may struggle.

Topic 4 - Economics (5 decks)

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