4.1 international economics Flashcards
explain the characteristics of globalisation
- expansion in global trade
- higher number of mnc’s
- developments of global brands
- increased labour migration
- international sourcing
what are causes of globalisation
- containerisation
- better technology and communication
- reduced protectionism
- increased international financial flow
- mnc/fdi
what impact does globalisation have on consumers
- increased range of goods and services
- homogenisation of culture
- fall in price of goods and services
- increased supply
define absolute advantage
when a country can produce a good at a cheaper cost than another country
define comparative advantage
when a country can produce a good at a lower opportunity cost than another country
list the assumptions and limitations of comparative advantage
- no transport costs (false)
- constant costs (will encounter economies of scale)
- 2 economies producing 2 goods (cant be dependent on another country)
- goods are homogeneous (false)
- no tariffs/trade barriers
explain the benefits of trade
- comparative advantage: more specialisation+supply
- econ of scale: increased market size
- increased competition: incentive to be more efficient
- more choice: higher quality goods at lower cost
explain the costs of trade
- overdependence: europe with russian gas
- structural unemployment: change in trade pattern industry declines
- environment: increased transport
- inequality: worsen inequality
- exposure of infant industries
what is the trade pattern
- types of goods and services being produced in different regions and the significance of those regions
what is trade level
total amount of world trade
what factors affect the pattern of trade
- comparative advantage
- emerging economies
- trade blocs
- trade agreements
- exchange rates
how does comparative advantage affect trade pattern
newly emerging economies create shifts with new comparative advantages being created
how do emerging economies affect trade pattern
industrialisation means they can produce more of a high value good
how do trade blocs affect trade pattern
- increased trade in the bloc (trade creation)
- decreased trade out the bloc (trade diversion)
how do trade agreements affect the trade pattern
multinational bilateral trade agreements will increase trade
how do exchange rates affect trade pattern
- appreciation/depreciation of a currency affects trade
what shirt run factors influence the terms of trade
- supply/demand: ^demand- ^prices
- inflation
- exchange rates: strengthened currency
what long run factors influence terms of trade
- income: ^income- ^demand
- productivity: ^productivity- -costs
what are bilateral trade agreements
trade between two countries worldwide
what is a free trade agreement
- eliminates tariffs, import quotas
- e.g CEFTA, EFTA
what are customs unions
- free trade areas with common external trade policy (tariffs)
- EUCU
what are common markets
- free trade areas with common policies on product regulation
- e.g CIS, EEA
what are monetary unions
- common markets and currency
- e.g EUROZONE
what are the costs of regional trade agreements
- harder to trade out of bloc
- differing needs make it hard to find common tariff
- easier outward migration of labour
- can not manipulate exchange rate
- infant industries are less protected
- hard to achieve export led growth
what are the benefits of regional trade agreements
- eliminates tariffs
- easier trade in bloc
- increased exports
- increased regional stability
- larger labour pull
- larger market
what are tariffs
tax placed on imported goods
what are import quotas
limit on the quantity of a good that can be imported
what are non tariff barriers
safety standards for goods
what reasons are there for restrictions on free trade
- protect infant industries
- protection against dumping: selling goods below the production cost
- control import spending to balance current account
reasons against protectionism domestically
- lack of incentive for infant industry to be efficient
- only a short term solution
- higher prices
what impact do protectionist policies have on consumers
importer: ^prices, -consumer surplus,
exporter: loss of jobs, impact on income
what impact do protectionist policies have on producers
exporters: -exports, -profits
importer: -competition, x-inefficient, tariff dependent
evaluate the impact of protectionist policies in governments
- exporter: - demand for exports
-importer: worsen current account, can start trade war
what is the impact of protectionist policies on inflation
- importer: imported inflation due to high prices
- exporter: deflationary effevt
what is a floating exchange rate
- currency determined by foreign exchange market
what is a fixed exchange rate
- when a currency is pinned to another currency or a commodity like gold
what is the difference between revaluation and appreciation of a currency
- revaluation are official changes in a countries value of currency
- appreciation is due to natural market forces
benefits if a floating exchange rate
- robust: more robust
- current account deficit can self correct
benefits of a fixed exchange rate
- reduced volatility: encourages trade and confidence
- financial discipline: discipline on gov not to over spend
what factors affect a floating exchange rate
- demand for exports - more foreign currency converted to domestic currency
- demand for imports - +demand for imports -> +supply of currency
- investment flows + inward flow of investment +demand for currency
- speculation - forecasts
what factors influence international competitiveness
- rise in exchange rates makes goods less competitive imports more
- rise in productivity lowers AC, rise in labour productivity leads to fall in unit labour costs
- rise in wages reduces competitiveness
- other non wage costs (pensions)
- tighter regulation increases costs
