(4.1.1-4.1.4) - Globalisation, Specialisation & Trade, Pattern of Trade, Terms of Trade Flashcards
4.1.3
comparative advantage:
a) Factors influencing the pattern of trade between countries and changes in trade flows between countries
when a country has a ‘margin of superiority’ in production - the marginal opportunity cost of production is lowest = advantageous to trade if comparative costs of production differ (both are focusing resources to be most productive and sell at lowest price)
4.1.3
impact of emerging economies:
a) Factors influencing the pattern of trade between countries and changes in trade flows between countries
- when countries grow, M will increase which means they have to X more g and s to pay for these M = growth affects patterns of trade
- eg china barely X and is now one of leading X
- Emerging countries have high rates of growth which disrupts existing trade patterns as their share of X and M grows
4.1.3
growth of trading blocs and bilateral trading agreements:
a) Factors influencing the pattern of trade between countries and changes in trade flows between countries
recent decades - proliferation of trading blocs and bilateral agreements = increase trade between pp countries at the expense of other countries = change pattern of trade
4.1.3
changes in relative exchange rates:
a) Factors influencing the pattern of trade between countries and changes in trade flows between countries
ER of 1 currency affects relative P of g between countries eg if £ depreciates on relation to the $ then UK exports become cheaper for US buyers but UK M become more expensive
4.1.1
a) Characteristics of globalisation
x4
- free trade across national boundaries of goods and services
- free movement of labour between countries
- free movement of capital between countries
- free interchange of technology and intellectual capital across nation boundaries
4.1.1
b) Factors contributing to globalisation in the last 50 years
x7
Trade in goods:
- developed countries goods are being manufactured abroad eg India and China - cost adv due to cheap labour
Trade in services:
- increasing - eg tourism - call centres, software in eg India being written up and sold to developing countries
Trade liberalisation:
- lower protectionist barriers encouraged growth in world trade
Multinational companies:
- eg car/oil - economies of scale needed, TNCs - monopolies - gov like as they bring in I
International financial flows:
- increasing eg China and Malaysia
Foreign ownership of firms:
- growing
Communications and IT:
- shrunk the time needed for econ agents to communicate eg industries like software doesn’t matter where u are working
4.1.1
c) Impacts of globalisation and global companies on:
Individual countries:
- can lead to rising Y, better jobs, lower P, more choice
- but can lead to loss of industry, higher unemployment, lower wages
- internal migration
4.1.1
c) Impacts of globalisation and global companies on:
Governments:
- adopt policies to capture largest shares of benefits from G and minimises losses eg lowering taxes (encourage movement of MNC to their jurisdiction) or giving sub to certain MNC
- increase education and research/development = competitive edge in global market
- govs prone to corruption/bribery - distort development and leads to lower Y - many Asian and African countries
4.1.1
c) Impacts of globalisation and global companies on:
Producers:
- specialisation and econ dependency - increased interdependence, trade links, reduced risk from being able to supply from more global scale
- Costs and markets - sources products from wider variety = lower P, opens to new markets
- Footloose capitalism - firms operate in several countries - can move production from country to country = max profit
- tax avoidance - transfer pricing, set up office in low tax country, transfer production facilities to a low tax country
4.1.1
c) Impacts of globalisation and global companies on:
consumers:
- Choice - increased
- Prices - fall due to reduced CoP for many firms eg cheaper labour and improved efficiency (tech), also increase due to rise in world avg incomes = increased D
- Incomes - rising = buy mor g+s but some falling due to loss of jobs
4.1.1
c) Impacts of globalisation and global companies on:
Workers:
- un/employment - caused lots of structural unemployment, loss of jobs due to deindustrialisation
- migration - increased eg econ migrants - fill skill gaps and increase productivity, create businesses = create jobs, can ‘take jobs’ = increase unemployment
- wages - increased tech = lower wages for low skilled labour, international competition - increased wages for high skill eg as there are fewer with this in developing countries = doward wage pressure on low skill workers and upward pressure on high skilled = increase inequalities
- multinationals - create jobs, raises lvls of human capital
4.1.1
c) Impacts of globalisation and global companies on:
The environment:
- increase in D = increase of need for resources and increased emissions and waste
- some progress eg UK to use econ growth and reduce environmental degradation
- MNC - exploitation but they have financial resources to minimise their impact
4.1.2
a) Absolute and comparative advantage (numerical and diagrammatic):
Absolute vs Comparative:
- absolute adv exists when a country, individual, company or region produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service - can create more of a product with the same factor inputs
- comparative adv exists when a country has a ‘margin of superiority’ in production i.e. where marginal OC of production is lowest
4.1.2
a) Absolute and comparative advantage (numerical and diagrammatic):
4.1.2
Absolute and comparative advantage assumptions and limitations relating to the theory of comparative advantage
- Fixed endowment of resources (no growth or tech change/dynamic efficiency):
- in the future may lose adv - risk for countries who over-rely on 1 export
- endowment of resources or tech change could bring about even more benefits - Uses the analysis of only 2 countries with perfectly free trade:
- not representative of real, globalised world where tariffs/trade barriers exist
- tariffs - make OC for producer more expensive
- trade diversion - no transportation costs of M/X and externalities ignored:
- generally theory holds true is transport costs are low
- if costs are high = CA wont be exploited - esp with environmental concern (addition cost from pollution taxes) - Constant OC:
- when production increases, OC doesn’t increase
- in reality there is an increasing OC - specialisation
- theory relies on linear PPF - no diminishing returns
