4.1 globalisation

Question 1

What is the GDP?

Answer 1

The total value of goods and services produced in a country within a given time period

Question 2

What are emerging economies?

Answer 2

Economies that have increasing growth rates but relatively low income per head

Question 3

What is globalisation?

Answer 3

Economic integration of different countries through increasing freedoms in the cross border movement of people, goods/services, technology and finance

Question 4

What does BRICS stand for ?

Answer 4

Brazil
Russia
India
China
South africa

Question 5

What does MINT stand for ?

Answer 5

Mexico
Indonesia
Nigeria
Turkey

Question 6

What is the impact of economic growth on businesses ?

Answer 6

–> Increased profits as they enter new markets
–> Reduced costs of production as lower labour costs and cheaper raw materials
–> Increased trade opportunities as demand for goods and services increased
–> Increase in FDI as they want to invest in growing economies

Question 7

What is the impact of economic growth on individuals ?

Answer 7

–> Reduced unemployment
–> Increased average incomes
–>Access to quality public services as more tax revenue generated

Question 8

What are the 4 indicators of growth ?

Answer 8

1. GDP
2. Literacy
3. Health
4. HDI

Question 9

What is the difference between imports and exports ?

Answer 9

Imports are goods and services bought by people and businesses in one country from another country

Exports are goods and services sold by domestic businesses to people or businesses in other countries

Question 10

What is specialisation ?

Answer 10

Occurs when a country or business decides to focus on producing a particular good or service

Question 11

What are the advantages of specialisation ?

Answer 11

• lower unit costs
• economies of scale
• lower consumer prices
• increase profit margins
• excess output sold abroad as exports
• competitive advantage

Question 12

What is foreign direct investment ?

Answer 12

Investment by foreign firms which result in more than 10% ownership of domestic firms

Question 13

How do businesses typically grow through FDI ?

Answer 13

Mergers
Takeovers
Partnerships
Joint ventures

Question 14

Advantages of FDI ?

Answer 14

Increased economic growth
Increased job opportunities
Access to knowledge and expertise from foreign investors

Question 15

What is the difference between inward FDI and outward FDI ?

Answer 15

Inward FDI occurs when a foreign business invests in the local economy

Outward FDI occurs when a domestic business expands its operations to a foreign country

Question 16

What is trade liberalisation ?

Answer 16

Trade liberalisation is the removal or reduction of barriers to trade between different countries

Question 17

What is the benefits of trade liberalisation?

Answer 17

> Increased international trade allows businesses to increase their market size —-> economies of scale

> Free trade helps businesses to reduce costs as imported raw materials and components can be sourced more cheaply

Question 18

What is the drawback of trade liberalisation?

Answer 18

> Domestic / Infant industries 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

Question 19

What are the reasons for increased globalisation?

Answer 19

• growth of global labour force
• migration
• reduced trade barriers
• political change
• reduced transport and communication costs
• increased importance of global companies
• increased investment flows

Question 20

What is protectionism ?

Answer 20

When a government seeks to protect domestic industries from foreign competition

Question 21

What is a tariff ?

Answer 21

tax placed on imported goods from other countries

Question 22

What does a tariff do to the price ?

Answer 22

Increases the price of imported goods which helps to shift demand for that product/service from foreign businesses to domestic businesses

Question 23

What are the benefits of a tariff ?

Answer 23

> 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

Question 24

What are the disadvantages of tariffs ?

Answer 24

> 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

Question 25

What is a quota ?

Answer 25

government imposed limit on the amount of a particular product allowed into the country

Question 26

What are the benefits of quotas ?

Answer 26

• > 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)

Question 27

What are the disadvantages of quotas ?

Answer 27

> 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

Question 28

What is government legislation?

Answer 28

Governments can impose laws to restrict certain imports to protect customers and businesses

Question 29

What is the benefit and drawback of gov. legislation?

Answer 29

> Allows domestic firms to grow as they have limited competition from businesses abroad

> Can lead to retaliation from countries facing the legislation

Question 30

What is domestic subsidies ?

Answer 30

Payments are given to domestic businesses to help lower costs of production

Question 31

What is the benefits and drawbacks of domestic subsidies ?

Answer 31

> 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

> Businesses may become inefficient as they know as they know their costs are being subsidised

Question 32

What is a trading bloc ?

Answer 32

a group of countries that form an agreement to reduce or eliminate protectionist measures between each other

Question 33

What is trade creation ?

Answer 33

Trade creation means that businesses are able to enter new markets which can lead to an increase in sales volume and sales revenue

Question 34

What are the three main trading blocs?

Answer 34

EU

NAFTA

ASEAN

Question 35

What is the benefits for businesses inside the bloc ?

Answer 35

1. Wider markets
2. External tariff walls - tax applied to imported goods by a group of countries that have formed a trade agreement
3. Infrastructure support
4. Free movement of labour

Question 36

What is the drawback for businesses inside the bloc ?

Answer 36

1. Increased competition
2. Common rules and regulations
3. Retaliation
4. Inefficiency