4.1.1 globalisation - 4.1.2 specialisation and trade

Question 1

globalisation is

Answer 1

the ever-increasing integration of the world’s economies into a single market

Question 2

a MNC is

Answer 2

a company with significant product operations in at least two countries

Question 3

4 characteristics of globalisation

Answer 3

1. free trade of goods and services
2. free movement of labour
3. free movement of capital
4. free exchange of technology and ideas

Question 4

4 causes of globalisation

Answer 4

1. trade liberalisation
2. technological improvements
3. multinational companies
4. trading bloc

Question 5

3 positive effects of globalisation on consumers

Answer 5

1. consumer choice flexibility
2. lower prices
3. better quality and design

Question 6

6 negative effects of globalisation on consumers

Answer 6

1. homogenised goods
2. commodity prices soared
3. certain products where demand is not perfectly elastic in long-run
4. stagnation of income
5. local industries shrink
6. greater risk of cross-border cyberattack, spying and data protection

Question 7

5 positive effects of globalisation on producers

Answer 7

1. increased specialisation and trade
2. lower risk: raw material and larger market
3. lower costs of production so lower price
4. greater profits
5. regulation and tax avoidance

Question 8

5 negative effects of globalisation on producers

Answer 8

1. increased dependency
2. trade sanctions, e.g. russia
3. tnc’s footloose

Question 9

describe how TNC footloose is a disadvantage of globalisation on producers

Answer 9

1. TNCs can move operations which destabilises local economies
2. producers may have to compete by lowering costs leading to poor wages
3. heavy reliance on TNCs makes producers vulnerable to sudden changes causing economic volatility
4. local producers face resource depletion, lack of control and must conform to costly standards, increasing risks when TNCs relocate

Question 10

5 positive effects of globalisation on workers

Answer 10

1. greater number of TNCs so more jobs
2. higher income for skilled individuals
3. migrants means better opportunities
4. human capital rises
5. inequality falls

Question 11

6 negative effects of globalisation on workers

Answer 11

1. outsourcing means job losses
2. structural unemployment
3. stagnant wages
4. migration means more foreign individuals are employed
5. strain on public provisions like healthcare
6. TNCs only give locals low skilled jobs

Question 12

3 positive effects of globalisation on government

Answer 12

1. higher tax revenue
2. create policies to attract firms like subsidies and tax allowances
3. more spending on education and R&D

Question 13

5 negative effects of globalisation on the government

Answer 13

1. TNCs relocating means job losses and taxes
2. losing taxes on tax avoidance
3. bribery + corruption
4. distorts development
5. environmental degradation

Question 14

absolute advantage

Answer 14

exists when a country is able to produce a good more cheaply in absolute terms than another country

Question 15

comparative advantage

Answer 15

exists when a country is able to produce a good more cheaply relative to other goods produced domestically than another country

Question 16

theory of comparative advantage

Answer 16

countries will find it mutually advantageous to trade if opportunity cost of production of goods differs

Question 17

why do countries trade

Answer 17

to gain from specialisation, leading to product differentiation and lower costs of production

Question 18

evaluation - assumptions

Answer 18

1. no transport costs
2. no external costs
3. no tariffs or trade barriers
4. factors of production are perfectly mobile
5. constant costs - no economies of scale
6. only two economies + two goods

Question 19

4 reasons for changing trade flows

Answer 19

1. changes in absolute and comparative advantage
2. development of emerging economies
3. growth of trading blocs and bilateral trading agreements
4. changes in relative exchange rates

Question 20

describe geographical patterns of trade

Answer 20

1. intra-regional trade - trade between countries in the same region , e.g. countries trade the most with those in closest proximity
2. physical: shared borders, number of rivers, coastline, resources
3. human: shared culture, colonial origins

Question 21

commodity patterns of trade

Answer 21

the extent of a country’s dependence on primary, secondary and tertiary industries

Question 22

uk application - list the UK’s trading partners

Answer 22

1. US - largest trading partner, exports worth £4 billion and imports worth £5.8 billion
2. China - key trading partner for imports
3. Switzerland: exports reaching £5 billion

Question 23

Terms of trade

Answer 23

measures how the prices of a country’s exports are changing compared to its import prices

Question 24

formula for terms of trade

Answer 24

index of export prices/index of import prices x 100

Question 25

if export prices RISE relative to import prices

Answer 25

1. there has been an improvement in the terms of trade
2. one unit of exports buys more imports
3. leading to an improvement in living standards as imported goods appear cheaper to consumers

Question 26

if import prices RISE relative to export prices

Answer 26

1. there has been a deterioration in the terms of trade
2. leading to a decline in living standards
3. as foreign currency earnings are less expensive and imported consumer goods are more expensive

Question 27

5 factors influencing terms of trade

Answer 27

1. Changes in relative exchange rates
2. Changes in relative inflation rates
3. Changes in demand for X/M
4. Changes in relative productivity
5. Changes in commodity prices

Question 28

Why is an improvement in the terms of trade not always a good thing

Answer 28

1. depends on the PED of X and M
2. possible for price of X to increase but value of X to decrease
3. leading to less export revenue and growth

Question 29

why is deterioration in the terms of trade not always a bad thing

Answer 29

1. as a country becomes more competitive, their cost of exporting may decrease
2. lower export prices reduces a country’s terms of trade