4.1 International Economics Flashcards
Globalisation definition
growing integration of countries
Characteristics of globalisation
increased foreign ownership of firms
free trade in g/s
easy flow of capital
free movement of labour
Factors contributing to globalisation
improvement in transport
improvement in technology
trade liberalisation
MNCs looking to decrease costs
Impact of globalisation on consumers
more choice
can lead to lower prices due to firms taking advantage of lower costs of production
can lead to higher prices as incomes rise causing increased demand
loss of culture
Impact of globalisation on workers
large scale loss of jobs in the West as production has been taken to China etc
poor conditions
Impact of globalisation on producers
spreads risk as they can source to more countries
can employ low skilled workers
Globalisation impact on economic growth
increased investment in countries
new technology and techniques
Absolute Advantage definition
when a country can produce goods cheaper than another
Comparative Advantage definition
When a country produces a good at a lower opportunity cost than another
limitations of comparative and absolute theories
assumes there are no transport costs
assumes all goods are homogenous
Pros and cons of specialisation and trade
P-allows firms to benefit from economies of scale
-greater choice for consumers
-greater competition -> more innovation
-increased world output as firms produce what they are good at
C-over dependence
-can cause structural unemployment as jobs are lost to foreign firms
-environmental issues
-loss of culture
Factors influencing the pattern of trade
Comparative Advantage
-a change in comparative advantage will effect a firms trade pattern
Trade blocs
exchange rates
terms of trade calculation
average export price/ average import price x100
factors influencing terms of trade (x-m)
exchange rates
inflation
productivity
changing incomes
What is an FTA (Free Trade Area)
An agreement between countries of no barriers with countries inside bloc but can impose barriers on external countries
What is a custom union
no barriers between internal countries but a CET against non members
What is a common market
free trade in country as well as free movement of FoPs
What is a Monetary Union
a bloc with a central bank and a single currency eg EU
Benefits of Trade agreements
encourages increased specialisation
larger customer market
creates jobs
drawbacks of trade agreements
retaliation and new blocs can be made
reduction in competition if inefficient firms are
driven out
Reasons for restrictions on free trade
protect infant industries
protect domestic jobs
protect domestic firms
Main restrictions on free trade
tariffs
quotas
subsidies to domestic firms
Impact of protectionist policies on consumers (2)
Higher prices on imports
less choice
Impact of protectionist policies on producers
foreign producers miss out as their options are limited
