4.1 - International Economics Flashcards
Define globalisation
Globalisation is the increasing integration of the world’s national economies into an international market
Name some factors contributing to globalisation in the past 50 years
- Trade in goods and services
- Trade liberalisation
- Multinational corporations
- Technology + communication
- Containerisation
What is absolute advantage
When a country produces a good or service at a lover cost and using fever resources than another country
What is comparative advantage
When a country can produce a good or service at a lower opportunity cost than another country
Advantages of specialisation in an international context
- Greater world output - economic gains
- Consumers have more variety
- Lower average costs due to more competition
Disadvantages of specialisation in an international context
- Countries become over-dependant on importing some goods
- More structural unemployment as production is moved abroad
What a factors influence the patterns of trade
- Comparative advantage
- Emerging economies -more participation in trade
- Growth of trading blocs and trade agreements
- Changes in relative exchange rates
Terms of trade calculation? What does the number mean
Index price of exports over the index price of imports x 100.
Above 100 means improving, below 100 means worsening
What factors influence a country’s terms of trade (3)
- Supply and demand of import and exports
- Exchange rates
- Income
What is a free trade area
Where countries agree to trade goods with other with members without protectionist barriers
What is a customs union
Common trade policy with the rest of the world and free trade between members
What is a common market
Same as customs union so the trade between members and common external turns but also allows free movement of capital and labour
What are monetary unions
A group of countries that share the same currency and have the same interest rate
Role of the WTO?
Promotes world trade through reducing trade barriers and policing existing agreements
Name some reasons for restrictions on free trade
- Correct market failure
- Reduce trade deficit
- Protect infant industries
- Protect domestic jobs
What is protectionism?
The act of guarding a countries industries from foreign competition by imposing restrictions on free trade
Name some restrictions on free trade
Tariffs, quotas, subsidies to domestic producers, excessive administration (red tape)
Disadvantages of protectionism ?
Could distort the market and lead to a loss of allocative efficiency as lower competition means higher prices for consumers and less choice
What is the balance of payments
A record of all financial transactions made between consumers, firms and the government of one country to another
What does the current account include
Trade in goods and services, income and transfers
What causes a deficit on the current account
- Appreciation of the currency - SPICED
- Economic growth - more imports
- Exports less competitive
- deindustrialisation- less exports
Measures to reduce d country’s imbalance on the current account
- income tax to reduce imports
- Banks can lower interest rates to cause depreciation in the currency
- Supply - side policies to increase productivity and export more
What is a floating exchange rate? Draw diagram
The value of the exchange rate in a floating system is determined by the forces of supply and demand
What is a fixed exchange rate? Diagram?
A fixed exchange rate has a value determined by the government compared to other currencies
