4.1.1 globalisation - 4.1.2 specialisation and trade Flashcards
globalisation is
the ever-increasing integration of the world’s economies into a single market
a MNC is
a company with significant product operations in at least two countries
4 characteristics of globalisation
- free trade of goods and services
- free movement of labour
- free movement of capital
- free exchange of technology and ideas
4 causes of globalisation
- trade liberalisation
- technological improvements
- multinational companies
- trading bloc
3 positive effects of globalisation on consumers
- consumer choice flexibility
- lower prices
- better quality and design
6 negative effects of globalisation on consumers
- homogenised goods
- commodity prices soared
- certain products where demand is not perfectly elastic in long-run
- stagnation of income
- local industries shrink
- greater risk of cross-border cyberattack, spying and data protection
5 positive effects of globalisation on producers
- increased specialisation and trade
- lower risk: raw material and larger market
- lower costs of production so lower price
- greater profits
- regulation and tax avoidance
5 negative effects of globalisation on producers
- increased dependency
- trade sanctions, e.g. russia
- tnc’s footloose
describe how TNC footloose is a disadvantage of globalisation on producers
- TNCs can move operations which destabilises local economies
- producers may have to compete by lowering costs leading to poor wages
- heavy reliance on TNCs makes producers vulnerable to sudden changes causing economic volatility
- local producers face resource depletion, lack of control and must conform to costly standards, increasing risks when TNCs relocate
5 positive effects of globalisation on workers
- greater number of TNCs so more jobs
- higher income for skilled individuals
- migrants means better opportunities
- human capital rises
- inequality falls
6 negative effects of globalisation on workers
- outsourcing means job losses
- structural unemployment
- stagnant wages
- migration means more foreign individuals are employed
- strain on public provisions like healthcare
- TNCs only give locals low skilled jobs
3 positive effects of globalisation on government
- higher tax revenue
- create policies to attract firms like subsidies and tax allowances
- more spending on education and R&D
5 negative effects of globalisation on the government
- TNCs relocating means job losses and taxes
- losing taxes on tax avoidance
- bribery + corruption
- distorts development
- environmental degradation
absolute advantage
exists when a country is able to produce a good more cheaply in absolute terms than another country
comparative advantage
exists when a country is able to produce a good more cheaply relative to other goods produced domestically than another country
theory of comparative advantage
countries will find it mutually advantageous to trade if opportunity cost of production of goods differs
why do countries trade
to gain from specialisation, leading to product differentiation and lower costs of production
evaluation - assumptions
- no transport costs
- no external costs
- no tariffs or trade barriers
- factors of production are perfectly mobile
- constant costs - no economies of scale
- only two economies + two goods
4 reasons for changing trade flows
- changes in absolute and comparative advantage
- development of emerging economies
- growth of trading blocs and bilateral trading agreements
- changes in relative exchange rates
describe geographical patterns of trade
- intra-regional trade - trade between countries in the same region , e.g. countries trade the most with those in closest proximity
- physical: shared borders, number of rivers, coastline, resources
- human: shared culture, colonial origins
commodity patterns of trade
the extent of a country’s dependence on primary, secondary and tertiary industries
uk application - list the UK’s trading partners
- US - largest trading partner, exports worth £4 billion and imports worth £5.8 billion
- China - key trading partner for imports
- Switzerland: exports reaching £5 billion
Terms of trade
measures how the prices of a country’s exports are changing compared to its import prices
formula for terms of trade
index of export prices/index of import prices x 100
if export prices RISE relative to import prices
- there has been an improvement in the terms of trade
- one unit of exports buys more imports
- leading to an improvement in living standards as imported goods appear cheaper to consumers
if import prices RISE relative to export prices
- there has been a deterioration in the terms of trade
- leading to a decline in living standards
- as foreign currency earnings are less expensive and imported consumer goods are more expensive
5 factors influencing terms of trade
- Changes in relative exchange rates
- Changes in relative inflation rates
- Changes in demand for X/M
- Changes in relative productivity
- Changes in commodity prices
Why is an improvement in the terms of trade not always a good thing
- depends on the PED of X and M
- possible for price of X to increase but value of X to decrease
- leading to less export revenue and growth
why is deterioration in the terms of trade not always a bad thing
- as a country becomes more competitive, their cost of exporting may decrease
- lower export prices reduces a country’s terms of trade
