4.1 international economics Flashcards
positives of globalisation
-increased consumer choice
-low prices for consumers
-improved living standards
-access to cheap factor inputs for businesses
-firms can make higher profits due to access to bigger market
-encourages specialisation
-reduction in unemployment
-increased revenue from import tariffs for governments
negatives of globalisation
-increased environmental degradation
-increased interdependence so a recession in one country will spread quickly
-access to cheap labour abroad will cause local unemployment to rise
characteristics of globalisation
-increased trade
-increased interdependence
-more FDI and TNCs
-easy access to factor inputs
world trade organisation
-promotes free trade by following a policy of trade liberalisation
-provides a platform for trade negotiations and settlement of any trade issues between member countries
advantages of regional trade agreements
-no transition costs
-greater price transparency
-no need to account for exchange rate fluctuations which hurt a countries’ competitiveness
-attract FDI which is good for growth
disadvantages of regional trade agreements
-transition costs e.g menu costs
-no control over monetary policy
types of trade blocs
- free trade area
-free movement of goods and services
-each member can set their own trade barriers for non members - customs union
-members have a joint trade policy for all non members - common market
-free movement of factor inputs - monetary union
-single currency as in the Eurozone
-conditions: similar growth patterns and business cycles of member countries, similar cultures to decrease barriers to free movement, increased spending in adversely affected areas
specialisation
a country producing good in which it has a comparative advantage in
assumptions/limitations of the theory of comparative advantage
-all countries produce identical goods
-free movement of factor inputs
-zero transportation costs
-zero economies of scale
-perfect information
advantages of trade and specialisation
-greater choice for consumers
-cheaper goods for consumers
-greater efficiency
-firs experience economies of scale
-wider market so higher profits
-increased growth and higher standards of living
disadvantages of trade and specialisation
-countries become interdependent
-terms of trade may worsen e.g they import higher value goods and export low value goods
-over reliance on the production of one good
-countries lacking comparative advantage will lose out
-unwanted goods can be dumped in poorer countries at low prices which is bad for local firms
-may widen the poor and rich gap
-bad for infant industries
comparative advantage
an economy ability to produce a particular good or service at a lower opportunity cost than its trading partners
