4.1 International Economics

Question 1

Globalisation:

Answer 1

Growing interdependence of countries and the rapid rate of change it brings about.

Question 2

Impact of globalisation on consumers: (2)

Answer 2

• Consumers have more choice since there are a wider range of goods available from all around the world, not just those produced in the UK.
• It can lead to lower prices as firms take advantage of comparative advantage and produce in countries with lower costs, for example low labour costs.

Question 3

Impact of globalisation on workers: (2)

Answer 3

• There have been large scale job losses in the western world in manufacturing sectors as these jobs have been transferred to countries such as China and Poland.
• Increased migration may affect workers by lowering wages but migrants can also provide important skills and an increase in AD which increases the number of jobs

Question 4

Impact of globalisation on producers: (2)

Answer 4

• Firms are able to source products from more countries and sell them in more countries. This reduces risk since a collapse of the market in one company will have a smaller impact on the business.
• Firms who are unable to compete internationally will lose out.

Question 5

Impact of globalisation on government:

Answer 5

The government may be able to receive higher taxes, since TNCs pay tax and so do the people they employ. However, they could lose out through tax avoidance.

Question 6

Comparative advantage:

Answer 6

That countries find specialisation mutually advantageous if the opportunity costs of production are different

Question 7

Absolute advantage:

Answer 7

exists when a country can produce a good more cheaply in absolute terms than another country.

Question 8

Assumptions and limitations of the comparative advantage theory: (2)

Answer 8

• Assumes there are no transport costs
• Assumes that factors of production are perfectly mobile , there are no tariffs or other trade barriers and there is perfect knowledge.

Question 9

Advantage of specialisation and trade:

Answer 9

World output can be increased if countries specialise in what they are best at producing, this will increase global economic growth.

Question 10

Disadvantages of specialisation and trade:

Answer 10

However, trade can lead to over-dependence, where some countries become dependent on particular exports whilst others become dependent on particular imports. This can cause problems if there are large price falls in the exports of if imports are cut for political reasons.

Question 11

Terms of trade measures:

Answer 11

the rate of exchange of one product for another when two countries trade

Question 12

Calculation of terms of trade:

Answer 12

(average export price index/average import price index) x100