4.1 Flashcards
how is the growth rate measured?
The growth rate of a country is measured by the annual change in its gross domestic product (GDP).
what is globalisation
the economic integration of different countries through increasing freedoms
globalisation has sped up _______ in developing nations
industrialisation
what is the result of the growing middle class in emerging economies?
a growing middle class with increasing incomes which allows their citizens to spend more on domestic goods and imported goods from abroad
This increases the profitability of international firms who sell their goods and services in these emerging economies
Impact of Economic Growth in emerging economies on Businesses
- Potential for increased profits as businesses enter new markets and gain more customers
- Customers are likely to have income elastic demand leading to increased sales and revenues/profits
- Reduced costs of production as businesses can benefit from lower labour costs and cheaper raw materials in emerging economies
- Increased trade opportunities as demand for goods and services increases
- Increase in investment because as the economy grows, businesses want to expand so they are more likely to invest
The Impact of Economic Growth on Individuals
- reduced unemployment (more demand needs more labour to increase output)
- increase average income as more people are employed which increases standard of living
indicators of growth
GDP - higher gdp = higher standard of living
Health (infant mortality rate, access to healthcare, etc) - has an impact on the quality of the workforce
HDI - measured between 0-1, looks at things like life expectancy, years of schooling etc. doesn’t account for inequality in a country and has a lack of reliable data in some countries
what are imports
imports are goods and services brought in from another country
what are exports
goods and services sold by domestic businesses
specialisation occurs when ________
a country/business decides to focus on producing a particular good/service
Specialisation can increase the quantity and quality of goods and services. This has many benefits including;
- Lower unit costs due to Economies of scale as costs are spread over a large output
- Lower unit costs allow the business to lower prices for consumers leading to more sales
- If businesses do not lower their selling price, then due to the lower costs they are able to to increase their profit margins
Countries benefit from FDI as this can lead to:
- Increased economic growth as there is an inflow of money into the country
- Increased job opportunities as businesses expand operations
- Access to knowledge and expertise from foreign investors
Trade Liberalisation
the removal or reduction of barriers to trade between different countries
Benefits of Trade Liberalisation
- allows businesses to increase their market size
- This leads to increased output and countries can benefit from economies of scale
- helps businesses to reduce costs as imported raw materials and components can be sourced more cheaply
Drawbacks of Trade Liberalisation
- Domestic firms may not be able to compete against international firms
- Some industries may be subject to dumping as businesses abroad may sell excess products at unfairly low prices
protectionism
when a government seeks to protect domestic industries from foreign competition
benefits of a tariff
- They protect infant industries so they can eventually become more competitive globally
- An increase in government tax revenue
- Reduces dumping by foreign businesses as they cannot sell below the market price
Disadvantages of tariffs
- increases the cost of imported raw materials which may affect businesses who use these goods for production, leading to higher prices for consumers
- Reduces competition for domestic firms who may become more inefficient and produce poor quality products for their customers
- Reduces consumer choice as imports are now more expensive and some customers will be unable to afford them
what are import quotas
a government imposed limit on the amount of a particular product allowed into the country
benefits on import quotas
- To meet extra the demand, domestic businesses may need to hire more workers which reduces unemployment and benefits the wider economy
- The higher prices for the product may encourage new businesses to start up in the industry
- Countries are able to easily change import quota as market conditions change
- Foreign countries view a quota as less confrontational to their business interests than tariffs
- Their exporters can still sell their goods at the higher price in domestic markets (but a limited amount)
disadvantages of import quotas
- Quotas limit the supply of a product and whenever supply is limited, the price of the product rises
- They may generate tension in the relationship with trading partners
- Domestic firms may become more inefficient over time as the use of quotas reduces the level of competition
how does government legislation protect domestic industries
Imports may need to meet strict regulations in order to be allowed into the country
benefit of government legislation to protect domestic industries
Allows domestic firms to grow as they have limited competition from businesses abroad
drawbacks of government legislation to protect domestic industries
Can lead to retaliation from countries facing the legislation
how do government legislation protect domestic industries
Payments are given to domestic businesses to help lower costs of production
benefits of subsidies
-Reduced costs can lead to lower prices making domestic firms more competitive in international markets as their exports may be cheaper
-Businesses remain competitive and this helps to protect jobs in the industry
drawbacks of subsidies
Businesses may become inefficient as they know as they know their costs are being subsidised
what is a trading bloc
a group of countries that form an agreement to reduce or eliminate protectionist measures between each other
The Impact of Trading Blocs on Businesses
Businesses outside the trading bloc will face higher costs from protectionist measures such as tariffs and trying to meet legal requirements inside the trading bloc
This will make them less competitive when trying to sell goods to member countries within the bloc
Being outside the bloc is likely to decrease their sales volume to countries within the bloc
benefits for businesses of belonging to trading blocs
Access to more markets -
Businesses are able to sell to more customers due to free movement of goods
Businesses may gain additional support from the government to enable them to maintain their competitiveness against businesses in countries inside the trading bloc
free movement of labour allowing businesses to source workers from a wider pool - A higher supply of labour may push wages lower, leading to reduced costs for business
The Drawbacks for Businesses Inside the Bloc
increased competition for businesses within the trade bloc which may be more of an issue for small businesses as they have less resources available with which to compete
External tariffs set against countries outside of the trading bloc may lead to retaliation from these countries
