4.1 International Economics

Question 1

Give the 5 characteristics of globalisation

Answer 1

Expansion of global trade
Increased number of multinational companies
Development of global brands
Greater labour migration
International outsourcing and offshoring of production

Question 2

Give two causes of globalisation

Answer 2

Containerisation - Lower transport costs
Reduced Protectionism - Lower average tariff levels

Question 3

What is the effect of globalisation on consumers

Answer 3

Increase in the range of goods and services that can be bought

Question 4

What is the effect of globalisation on producers

Answer 4

International outsourcing and offshoring

Question 5

Define absolute advantage

Answer 5

When a good can be produced more cheaply than another country

Question 6

Define comparative advantage

Answer 6

When a good can be produced at a lower opportunity cost compared to another country

Question 7

List the assumption of comparative advantage

Answer 7

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

Question 8

Give two advantages of trade

Answer 8

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

Question 9

Give two disadvantages of trade

Answer 9

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

Question 10

Explain the difference between pattern and level of trade

Answer 10

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

Question 11

Give two factors affecting the global pattern of trade

Answer 11

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

Question 12

Define and formulate terms of trade

Answer 12

The ratio between average export prices and average import prices

(Index of export prices / Index of import prices) * 100

Question 13

Give two factors influencing terms of trade

Answer 13

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

Question 14

Explain the difference between regional and bilateral trade agreements

Answer 14

Regional - between 2 or more parties (trade bloc)
Bilateral - between 2 parties

Question 15

List the four types of trade blocs

Answer 15

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

Question 16

Give two advantages of regional trade agreements

Answer 16

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

Question 17

GIve two disadvantages of regional trade agreements

Answer 17

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

Question 18

Explain the role of the World Trade Organisation

Answer 18

Deals with rules of trade between nations - resolves trade disputes and drives negotiations of trade agreements

Question 19

GIve two disadvantages of the WTO

Answer 19

WTO have been criticized for trade rules which are unfavourable towards developing countries

Protectionist policies employed by WTO primarily benefit richer nations

Question 20

List the 4 types of protectionism

Answer 20

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