4.1 Flashcards
Define Globalisation
the increased interdependence of economies through trade
Give three examples of global companies
Dell, Amazon, BP
identify three characteristics of globalisation
- increased trade
- increased Foreign Direct Investment (FDI)
- increased migration of movement of people
identify three characteristics of de-globalisation
- increased trade barriers such as tariffs
- falling trade as a % of global GDP
- less migration
identify three causes of globalisation
- lower transport and communication costs
- increased importance of transnational corporations (TNCs)
- lower trade barriers or trade liberalisation
explain how trade liberalisation can increase globalisation
when trade can take place with no restriction, this reduces the transnational costs of trading. when the cost of trade reduces, more trade will take place. this has been seen within trading blocs such as the EU, where the free movement of goods and services has increased the volume of trade amongst member countries.
explain how reduced transport and communication costs causes globalisation
transport and communications are a cost of production, so if these aspects of tradce can be reduced then world supply can increase. this means that it becomes cost effective to import goods from further away rather than product them domestically, which increases the chances of specialisation. it also means that production can be broken down so that components can be maden in various countries and transported to an assembly point. comms improvements have meant that it is easier to manage a global workforce, as well as market and sell products globally without having a physical presence in a country.
Explain how the existence of Trans National Corporations (TNCs) cause globalisation
TNCs have found that there are three reasons to expand internationally - this is because:
- in search of resources
- in search of markets to sell their products
- in search of efficient locations to produce.
this means that the profit motive has driven TNCs to look for opportunities to reduce costs, and increase revenues internationally.
which is the most significant cause of globalisation?
TNCs are a key driver of globalisation because they have been re-locating manufacturing to countries with relatively lower unit labour costs in order to increase profits and returns for shareholders.
identify three benefits of globalisation
- increased world ouput, through comparative advantage
- reduction in poverty by giving countries access to inflows of money
- improved quality and choice for consumers
identify three disadvantages of globalisation
- externalities from transport and increased production
- inequalities within and between countries
- vulnerability to external shocks
- structural unemployment
- exploitation
why has there been a public backlash against globalisation in recent years
- concerns about global warming, habitat destruction and resource depletion
- concerns about the distribution of global wealth
- concerns from individual firms who have lost their jobs or been disadvantaged by international competition
does globalisation benefit the world
globalisation and trade have gone hand in hand with reductions in poverty, increasing life expectancy and improvements in the standards of living - so overall yes.
identify three benefits of foreign direct investment (FDI to the host country
- transfer of technology (capital) and knowledge (human capital)
- provides employment and income/boosts AD in the short run, and LRAS through investment in productive potential
- provides tax revenue
identify three disadvantages of FDI to the host country
- exploitation of workers: low wage, poor working conditions
- bringing in overseas managers rather than employing local people
- environmental damage if government turn a blind eye to activities
- may have been given tax incentives, so not contributing to tax revenue
what are global supply chains and give examples
when sequences in the productive process can take place in different countries. for example, the raw materials for a pencil may be found in canada, the design of the pencil takes place in the uk, and the construction takes place in china.
define the law of comparative advantage
it states that a country should specialise in the production of a good in which they have the lower opportunity cost
define absolute advantage
when a country can produce at a lower opportunity cost compared to another country
draw a table to illustrate comparative advantage
look at notes
show on the table the opportunity costs for each country of producing each good
see notes
at what rate of exchange would trade be beneficial to both countries?
needs to be between opportunity cost ratios. see notes
draw a production possibility diagram to illustrate comparative advantage
one good e.g. trucks y axis, another good e,g cars x axis
two lines, skewed, one for country A and one for country B. going down from y axis to x axis
evaluate the benefits of specialisation
advantages:
- can become more efficient/productive as an economy
- can benefit from economies of scale
- can produce more and improve standards of living
disadvantages:
- if comparative advantage changes over time you may need to change the structure of your whole economy with significant transition costs e.g. structural unemployment
- you may get diseconomies of scale
- costs of transport may make trade too expensive with some countries
- makes you vulnerable if you are not producing strategic products such as food
use comparative advantage to explain the benefits of free trade and globalisation
the benefit of trade is that it allows countries to specialise in the products and services for which they have a comparative advantage. this means that world output can increase as countries specialise in products in which they are relatively efficient at producing. an increase in world output means that populations have more products and services to consume which increases standards of living globally.
what assumptions does the theory of comparative advantage make?
- no diseconomies of scale, or diminishing returns
- no transaction costs such as transport costs
- no externalities
how useful is this theory explaining the benefits of free trade?
while assumptions made are unrealistic, the theory itself is still useful in explaining how countries can benefit from trade, and it can be shown that increased trade does lead to increased standards of living
define terms of trade
they show the rate at which a countries exports can be swapped for imports
what is the formula for calculating terms of trade between two countries
index of import prices
define tariff
a tax on imports, paid by the company wanting to sell goods and services into an economy that is not their own and is received by the government of the host country.
define quota
a maximum number of goods that can be imported. once the max has been reached, then it is possible for a firm to sell above that number but they may be penalised with a tariff or other restriction.
define non tariff barrier
something that makes trade costlier or difficult, but which is not a tariff. e.g. health and safety regulation on imported goods, domestic subsidies or government procurement policies that favour domestic firms.
define voluntary export restraint agreements
a quota but it is self imposed by the exporting country rather than the importing country. they do this to avoid worse tariffs or quotas.
show in a diagram the impact of a tariff including the deadweight loss and government revenue
in notes
use this diagram (impact of a tariff) to explain the benefits or removing tariffs
when the tariff is removed the price to consumers falls from Pworld + tariff to Pworld, and the consumption of this good will increase from QD2 to Qd1 which will lead to an increase in consumer welfare
define protectionism
when a government imposes trade restrictions on other countries
identify and explain 4 reasons why a country uses protectionist policies and use examples
- the protect domestic jobs from structural unemployment,
e.g. protecting jobs in the domestic car industry by subsidising domestic producers - to generate government revenue
e,g for developing countries this could be an important source of tax revenue to invest in SS policies - to protect infant industries
e.g. the computer industry in Brazil was protected whilst this industry grew to a size where economies of scale could be achieved such that this company could withstand international competition - strategic products such as food are often protected as the country may need to remain self-sufficient in some products in case of conflict
explain four disadvantages of protectionism
- it reduces total consumption in an economy from Q1 to Q2
- there is a deadweight loss represented by the shaded triangles which reduces consumer and social welfare
- it could lead to retaliation or tariff wars
- it means consumers pay higher prices from Pworld to Pworld + tariff
