4.1 International Economics Flashcards
Give the 5 characteristics of globalisation
Expansion of global trade
Increased number of multinational companies
Development of global brands
Greater labour migration
International outsourcing and offshoring of production
Give two causes of globalisation
Containerisation - Lower transport costs
Reduced Protectionism - Lower average tariff levels
What is the effect of globalisation on consumers
Increase in the range of goods and services that can be bought
What is the effect of globalisation on producers
International outsourcing and offshoring
Define absolute advantage
When a good can be produced more cheaply than another country
Define comparative advantage
When a good can be produced at a lower opportunity cost compared to another country
List the assumption of comparative advantage
No transport costs
Constant costs
Two economies are producing two goods
Goods are homogenous
No tariffs or trade barriers
Perfect information
Factors of production are perfectly mobile
Give two advantages of trade
Comparative advantage - allows benefits of specialisation and leads to greater global production
Increased competition - more exposure means more incentive to cut costs, be efficient and innovate to create more appealing products
Give two disadvantages of trade
Structural unemployment - as the pattern of trade changes domestic industries may decline leading to regional structural unemployment
Overdependence - countries may become dependent on one product, if supply of product is difficult problems may arise
Explain the difference between pattern and level of trade
Level - Total amount of trade in the world
Pattern - Types of goods and services traded, the regions that trade takes place between and the significance of different parts of the world to a countries trade
Give two factors affecting the global pattern of trade
Emerging economies - Industrialisation of emerging economies creates more higher value goods instead of low value commodities, rapid growth in countries adds extra demand globally which creates more exports
Comparative advantage - as countries develop new comparative advantages are established
Define and formulate terms of trade
The ratio between average export prices and average import prices
(Index of export prices / Index of import prices) * 100
Give two factors influencing terms of trade
Inflation - A rise in domestic inflation compared to trading partners improves terms of trade as export prices rise
Incomes - Sustained rises in global incomes leads to increasing demands for many goods increasing terms of trade
Explain the difference between regional and bilateral trade agreements
Regional - between 2 or more parties (trade bloc)
Bilateral - between 2 parties
List the four types of trade blocs
Free trade areas - Eliminates tariffs, import quotas and preferences on most goods and services
Customs Unions - Free trade area with common external tariff
Common Markets - Free trade area with common policies on product regulation and freedom of movement of the factors of production, enterprise and services
Monetary Unions - Common Market and Customs Union with a single currency
Give two advantages of regional trade agreements
Larger economic markets mean that AR and MR can increase creating greater supernormal profits that can be reinvested
Greater labour pool means more skilled workers and greater productivity reducing cost of production
GIve two disadvantages of regional trade agreements
Economic brain drain - skilled labour move from less developed countries to more developed countries as there is greater opportunities
FInancial crisis effect is wider spread across all partners as each member is overly interdependent with eachother
Explain the role of the World Trade Organisation
Deals with rules of trade between nations - resolves trade disputes and drives negotiations of trade agreements
GIve two disadvantages of the WTO
WTO have been criticized for trade rules which are unfavourable towards developing countries
Protectionist policies employed by WTO primarily benefit richer nations
List the 4 types of protectionism
Tariffs - A tax on imported goods which raises the price for the domestic consumer
Import Quotas - A limit on the quantity of a good that can be produced abroad and sold domestically
Export Subsidies - Subsidies to specific export-oriented goods that will make them more competitive internationally
Non Tariff Barriers - Other obstacles to trade such as safety standards and technical barriers to trade
