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EDEXCEL A Level Business > 4.1 > Flashcards

4.1 Flashcards

1
Q

What is an economy?

A

The state of a country or region in terms of how many goods/services it is producing and consuming.

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2
Q

What is Gross Domestic Product (GDP)?

A

The value of all a country’s output of goods and services, used to measure change in economic activity.

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3
Q

What is an emerging economy?

A

Describes an economy in the process of rapid growth and industrialisation.

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4
Q

Key features of emerging economies?

A
  • going through a period of rapid industrialisation
  • enjoy faster long-term economic growth than most developed economies
  • inhabitants still in poverty - economic growth trying to bring them out
  • domestic businesses/markets still struggle to access global markets
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5
Q

Examples of emerging economies?

A

BRICS + MINTS

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6
Q

What are BRICS?

A

They have economic, cultural and geopolitical influence, and are known as superpowers.
Superpowers shift over time, some powers decline and others emerge.

Brazil
Russia
India
China

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7
Q

What are MINTs?

A

Countries that are seeing such rapid economic growth and are now becoming emerging economic giants - less developed countries.

Mexico
Indonesia
Nigeria
Turkey

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8
Q

Why do emerging economies enjoy faster economic growth?

A
  • urbanisation
  • industrialisation
  • population growth
  • per capita income growth - rise of middle classes + consumer society
  • workforce will continue to improve skills and be more productive
  • technological developments
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9
Q

For the UK, what are the threats of emerging economies?

A
  • increasingly large pool of skilled, but low cost labour
  • undervalued currencies make their exports cheaper
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10
Q

For the UK, what are the opportunities of emerging economies?

A
  • growing numbers of middle class consumers = growing consumer spending
  • cultural shifts e.g. higher demand for personal products, private education and healthcare
  • demand for infrastructure and other products and services from developed countries
  • source of high-skilled, low-cost labour
  • great potential for joint ventures
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11
Q

Risks for developed countries of expanding into emerging markets?

A
  • political instabiliy
    -cultural differences/sensitivities
  • variable approaches to financial and legal dealings
  • corruption
  • emerging markets becoming major exporters
  • low-cost production makes developed economies uncompetitive in some markets
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12
Q

Indicators of growth?

A
  • GDP per capita
  • literacy
  • health
  • human development index (HDI)
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13
Q

What is HDI?

A

Human development index.
- United Nations published an alternative measure of economic development since 1990 - HDI
- Focuses on life expectancy,basic education and minimal income
- Tracks progress made by countries improving these 3 basic development outcomes:
Knowledge, long and healthy life and a decent standard of living.

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14
Q

Advantages of HDI?

A
  • Uses 2 types of social data (health+education) and 1 type of economic data which means that the measure uses a broad range of information = not tied up with only one measure (more accurate)
  • Information is updated annually and collected by a range of people who ensure that the data is as accurate as possible
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15
Q

Disadvantages of HDI?

A
  • Standard HDI does not take into account qualitative factors, such as cultural identity and political freedoms (human security/human rights)
  • GDP per capita figure (and thus the HDI figure) takes no account of income distribution
  • Purchasing power parity (PPP) values used to adjust GDP data change quickly and can be inaccurate or misleading
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16
Q

Implications of economic growth?

A
  • start to see changes in employment patterns; working women, migration, the rise of the multi job, home working and the search for a better work-life balance
  • countries that diversify away from agriculture/traditional producers are those that are able to pull themselves out of poverty and get richer
  • overall productivity rises and incomes expand
  • increasing incomes of citizens
  • opportunities to increase revenue and profit for MNCs by moving into new markets
  • become attractive due to increased incomes with low labour costs and proximity to market
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17
Q

Why may a business want to know employment patterns before expansion?

A

→ A firm may want information on employment rates and trends, labour costs and productivity, as well as the educational qualifications of potential employees.
→ It gives a snapshot of the number of jobs that are being gained or lost across an economy.
→ The level of unemployment can reveal a lot about an economy.
→ Future employment trends are important (e.g. new tech may mean fewer workers required). As a result, cheaper labour costs may no longer be as significant a comparative advantage for an emerging economy.

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18
Q

Define international trade?

A

The exchange of products between countries.

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19
Q

Define imports

A

Goods/services that are made in other countries and brought into the UK.

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20
Q

What are imports?

A
  • They allow for an increase in choice for consumers.
  • Some countries specialise in producing certain goods, and with their low labour costs, they can make products at attractive prices in the UK.
  • Retailers e.g. Tesco rely heavily on imports and their success depends on their ability to source the preferred goods.
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21
Q

Where does the UK mostly import from?

A

15% - Germany → cars such as BMW, Minis etc
20% - China → computers
7.4% - US → planes and helicopters

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22
Q

Define exports

A

Goods/services manufactured in the UK and sold abroad.

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23
Q

Why may a firm export?

A

→ Mainly to find new markets and gain revenue
→ Allows them to grow
→ Helps them to even out their profits the economic cycle boom and bust

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24
Q

Where do the UK mainly export to?

A

9.3% - Germany → cars and aircraft parts
7.6% - Switzerland → Gold
5.6% - Netherlands → Petrol

Britain imports more than it exports.

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25
Q

Define specialisation.

A

The process of concentrating on and becoming expert in a particular subject or skill

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26
Q

Why may countries specialise?

A
  • It is more efficient to produce more output from the same amount of raw materials, machinery, energy and labour.
  • If businesses can squeeze more output from the same inputs, average cost will fall (specialisation can help achieve this).
  • This means the business should benefit from a cost advantage over rivals by lowering retail prices.
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27
Q

Benefits of specialisation?

A
  1. Increased productivity and output - meaning reduced average costs and economies of scale
  2. Comparative advantage over the next best country
  3. Increased productivity will lead to GDP growth and increasing sales will boost economic growth
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28
Q

Drawbacks of specialisation?

A
  1. A country may become over reliant on one industry and risk is not spread
  2. Other countries may become cheaper in the same industry and it may be harder to compete
29
Q

What is comparative advantage?

A

Exists when a country has a country has a margin of superiority in the production of a good/service.

I.e. Where the opportunity cost of production is lower - they have to give up less to produce a good.

30
Q

What did David Ricardo suggest?

A

That some countries are better at producing one good than other goods.

“ The whole world economy would be better off if each country produced what they are good at, and then traded. Total output will increase overall”

31
Q

Define foreign direct investment (FDI)

A

Where a company either sets up a new business abroad, or a company takes over or merges with another business that already exists overseas.

  • most complicated/risky/expensive form of investment in a country
  • occurs when a firm takes more than 10% in foreign enterprise
32
Q

Why may a business use FDI?

A

The business may:
- have high potential for making a profit if it invests in a new location
- need to maintain control over its subsidiaries in a new market
- be trying to acquire direct knowledge of the local market
- be attempting to avoid a barrier to the market

33
Q

Why may FDI be better than exporting?

A
  • Allows for tight control over operations in other country for managers.
  • Don’t need to be close to customers
  • Exporting incurs high transportation and logistic costs
34
Q

How can FDI enable a business to grow?

A
  • More secure since anticipated higher sales should equal more profit
  • Job status - responsibility and stability may be enhanced
  • New customers accessible
35
Q

Define globalisation.

A

The process by which the world is becoming increasingly interconnected as a result of massively increased international trade and cultural exchange.

  • the biggest companies are no longer national firms but multinational corporations (MNCs) with subsidiaries in many countries
36
Q

What are global markets?

A

International markets created by firms exporting, importing or offshoring

37
Q

What has globalisation led to?

A
  1. Greater trade across borders (international trade in exports/imports)
  2. An increase in FDI
  3. Global brands that serve markets in lower, middle and higher income countries
  4. Greater use of outsourcing and offshoring of production
  5. High levels of labour migration both within and between countries (movement of labour)
38
Q

Factors contributing to globalisation?

A
  • reduction of international trade barriers/trade liberalisation
  • political change
  • reduced cost of transport and communication
  • increased significance of global (transnational) companies
  • increased investment and flow (FDI)
  • migration (within and between economies)
  • growth of the global labour force
  • structural change
39
Q

Definition of trade liberalisation?

A

The process by which international trade is made easier through relaxation of tariffs and barriers.

  • tariffs are imposed on imports only
  • make imports more expensive for businesses/consumers to purchase
40
Q

Why were tariffs/quotas imposed?

A

The intention is that the higher price will divert demand away form imports and towards domestically produced substitutes.

41
Q

What is GATT?

A

General Agreement on Tariffs and Trade

In 1947 they promoted international trade by reducing and eliminating trade barriers.
This raised living standards around the world.

42
Q

What is the WTO?

A

The World Trade Organisation

In 1994, they ensured countries keep to the agreements they had made with one another and the terms are fair.
Deals with complaints between countries and encourages trade liberalisation.

43
Q

Benefits of trade liberalisation?

A
  • If tariffs are removed, the price of imports will fall, giving manufacturers and businesses the opportunity to decrease their variable costs, passing these low costs onto consumers by lowering prices.
    As a result, this creates opportunities for growth as they may be able to sell more products.
  • OR wider profit margins.
  • Increased market access to businesses willing to sell products abroad.
44
Q

Drawbacks of trade liberalisation?

A
  • Opens up domestic markets to foreign competition meaning consumers may not support local businesses as much if foreign comp. Can provide the same service/good for cheaper or improved quality.
  • Often UK businesses are less efficient than overseas rivals
  • When tariffs and quotas are removed, inefficient businesses will probably struggle to attract enough to consumers to break even.
45
Q

Define protectionism

A

The theory or practice of shielding a country’s domestic industries from foreign competition by taxing imports, imposing quotas or passing laws.
- put in place mainly to protect the government’s domestic industries

46
Q

What is a tariff?

A

A tax placed on an import to increase it;s price and decrease it’s demand.

  • can be imposed by governments to raise revenue and to restrict imports
  • tariffs may also be put in place for products that can cause a negative impact on the environment
  • likely to raise the final price to consumer
  • consumers will switch consumption to domestic
47
Q

What is the positive impact of tariffs?

A
  • protects a countries new domestic industries from foreign competition
  • protect a countries aging and inefficient industries from foreign competition
  • increase revenues for the country
48
Q

What is the negative impact of tariffs?

A
  • If a business faces having to pay stiff tariffs to export to other countries they may have to reduce production and this can mean job losses
  • They may have to increase the selling price to foreign consumers which could mean less sales and negative reputation
  • Foreign competition then benefit as they can position themselves better than the UK business and increase their market share in that particular country or continent
49
Q

Advantages of tariffs?

A
  • Domestic produced goods do not incur the tariff and so are likely to be cheaper
  • Tariff protection allows domestic business to sell more as they gain a price advantage over imports
  • Ensure better job security
  • It can raise important tax revenue for government which can be spent possibly on infrastructure
50
Q

Disadvantages of tariffs?

A
  • Some products do not put off potential customers willing to pay for unique or unusual imported goods
  • Tariffs may just increase the costs
  • Other countries may retaliate by imposing their own tariffs on imports
51
Q

What is an import quota?

A

A quota is a physical limit on the quantity of goods imported or exported e.g. only 10,000 units a year

  • will increase the share of the market available for domestic products
  • protects jobs of domestic products
  • in market environments where imports are on the rise, quotas are more protective than tariffs
52
Q

Advantages of import quotas?

A
  • protects domestic industries
  • safeguards jobs in domestic industries
  • benefits customers as the price of imported goods rise so domestic goods appear cheaper and better value in comparison
53
Q

Disadvantages of import quotas?

A
  • when a country uses quotas, it’s trading partner do the same and the end result is less exporting opportunity for all producers and higher prices for all consumers
  • quotas are also complex for the country using them - they require a lot of paperwork
  • it is also difficult to measure the precise degree of protection quotas offer
54
Q

What is government legislation?

A

Other ways to protect a domestic industry without tariffs or quotas (due to trading bloc).

A law or set of laws suggested by a government and made official by a parliament.

Can be done through legislation e.g. no fakes, safety of toys etc.

55
Q

Advantages of government legislation?

A
  • Can be a very powerful tool in preventing fake imports into counties e.g. any toys imported into the UK must have a CE mark.
  • Means customers can trust the products that they are buying are genuine.
  • Reduces number of toy manufactures that import, protecting domestic businesses.
56
Q

Disadvantages of government legislation?

A
  • Every import into the UK cannot be checked (2% are fake according to the OECD so no matter how many laws a country has it cannot prevent all fakes from arriving at the shores).
57
Q

What is a domestic subsidy?

A

A subsidy is a way of a government protecting their domestic markets

Money is given to local producers or make their goods cheaper on the domestic market.
This artificially raises the price of foreign goods relative to domestic goods therefore reducing demand for them.

58
Q

Advantages of domestic subsidies?

A
  1. Encourages businesses to increase their production, this can lead to more jobs being created and more tax paid back to the government.
  2. Can give domestic products first mover advantage when exporting to emerging markets (BRICS/MINTS).
  3. Can help domestic businesses to gain economies of scale from extra production.
59
Q

Disadvantages of domestic subsidies?

A

Domestic subsidies are a form of protectionism and so is open to retaliation from other nations in return.
As a result, this may mean higher tariffs or quotas on our exports.

60
Q

What is a trading bloc?

A

Groups of countries in specific regions that manage and promote trade activities.

Trading blocs lead to trade liberalisation and trade creation between members, since they are treated favourably in comparison to non-members.

61
Q

Examples of some significant trading blocs?

A

European Union (EU) - a customs union, a single market and now with a single currency.

Mercosur - a customs union between Brazil, Argentina, Uruguay, Paraguay and Venezuela.

Pacific Alliance - 2013 - a regional trade agreement between Chile, Colombia, Mexico and Peru.

62
Q

Information about the EU trading bloc?

A

The EU is a single marketplace between the 27 member countries
There is free movement of; people, money, goods and services between all 27 countries
20 of these have replaced their national currency with the Euro (to stabilise their currency) - this is known as the Eurozone.

63
Q

What is the ASEAN trading bloc?

A
  • Was started in 1967 by Thailand, Malaysia , Philippines and Singapore to promote economic and social growth in the region.
  • Since then it has expanded several times with five more countries joining the trade bloc.
  • It has negotiated a free trade agreement among member states and with other countries such as China, as well as eased traveled in the regain for citizens of member countries.
  • Over 600 million people in the marketplace.
64
Q

What countries does the ASEAN trading bloc include?

A
  • Brunei
  • Indonesia
  • Malaysia
  • Philippines
  • Singapore
  • Thailand
  • Myanmar
  • Cambodia
  • Laos
  • Vietnam
65
Q

What is the NAFTA trading bloc?

A
  • Was created in 1992 with the sample idea of giving the customers in the USA, Canada and Mexico cheaper goods.
  • Without import tariffs between the countries the goods are less expensive which is a bonus for the consumer, but not always popular with business.
66
Q

How does a trading bloc expand?

A

As other countries see the benefits of belonging to a free trade area, they may eventually apply to join.

These benefits may include; access to larger markets, economies of scale by producing more and selling more, enhanced competition and migration with a good supply of able bodied labour.

67
Q

Advantages to business of trading blocs?

A
  1. Free movement of goods between members gives the potential to create a large ‘single market’.
  2. External tariff walls insulate the business from competition from another pair of the world.
  3. As trade grows between neighbours, it becomes economic (and necessary) for government to provide infrastructure support.
  4. The advantages become much greater if there’s free movement of labour as well as free movement of goods.
68
Q

Disadvantages of trading blocs to businesses?

A
  1. Competition increases due to freer trade, so those with monopoly power may find it competed away.
  2. To create a single market, new rules and regulations be be agreed, including minimum wage rates.
  3. The availability of easily accessed neighbouring markets may reduce enterprise in relation to distant but dynamic ones such as china.
  4. Within a geographically proximate bloc, there may be common factors that together become common problems e.g. low commodity prices

EDEXCEL A Level Business (19 decks)

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