4.1.2 International trade and business growth Flashcards
define exports
Exports are the selling of goods and services to other countries
define imports
Imports are the buying of goods and services from other countries
what makes up the Balance of Payments on Current Account.
exports minus imports
describe how exports effects cash flow
money flows into uk- more tax revenue for uk- more money for services
- GDP growth
- profits from uk firms
- wages and jobs
describe how imports effect cash flow
- money flows out of uk
- loss on GDP growth
- less profits for uk
- less jobs / wage s
- less tax revenue
factors effecting imports and exports
- price elasticity
- state of the world economy
- Business specialisation and competitive advantage
- exchange rates
Factors affecting exports and imports:price elasticity
In the short run an exchange rate depreciation ( ) (i.e £ becomes weaker) will make imports more expensive
If the import is price inelastic - e.g. petrol - then total spending on the import will increase
This can cause serious problems for an economy and actually worsen the balance of payments
In particular, there will be inflationary pressure in the economy due to the rise in prices
It is very difficult for a government to control this inflation using the usual mechanisms (e.g. interest rates)
Conversely, if import is price elastic – e.g. cars – then total spending on import will decrease..
Where goods are becoming more expensive, in the long run it may be better for a country to substitute domestic products for imported ones
As consumers, businesses and government become more aware of the increased prices of imports they may try to change their spending habits
Factors affecting exports and imports:the state of the world economy
As global demand changes so will imports and exports
A strong economy will import goods and services in order to meet increased demand
This might lead to an increase in domestic consumption
However, it might be components or raw materials required in the production process for goods and services
These products might then be exported (Chinese model)
As global demand and supply changes so will imports and exports
If an economy increases its productive capacity this will allow it to increase supply to the rest of the world
This will lead to an increase in exports
Of course, countries will need to supply goods and services that are in demand to be able to do this
The US is the biggest economy in terms of global imports
However, newly rich countries are dramatically increasing their demand for goods and services
As these countries see economic growth the state of the world economy changes, as does the pattern of imports and exports
define Specialisation
occurs when economic units such as individuals, businesses, regions or countries concentrate on producing specific goods or services
define division of labour
Specialised use of workers within an organisation is likely to lead to increased output per worker (productivity) as the workforce have a better understanding of their job role
efficiency is gained by
Greater understanding of the requirements of production
Economic unit can specialising in what they are best at
Efficient use of time as there is no switching between tasks
Technical economies of scale as capital equipment is invested in (e.g. specialist machinery) is used to produce goods and services
Foreign Direct Investment (FDI) definition
is investment made by a business or from one country into assets (e.g. factories, shops, offices) within another country and will normally add to the production capacity of that country.
Foreign direct investment and the link to business growth
At first we have a less developed country that can be exploited in terms of costs e.g. labour by multinational corporations. This benefits the MNC but also creates income and wealth in a country.
This leads to economic growth that attracts inflows of FDI but also creates wealthier domestic businesses. As a result the economy and domestic businesses grow.
Finally, rising standards of living and greater use of technology lead to more FDI, both in and out of the country. Domestic businesses have acquired the skill and knowledge base of the MNC. External economies of scale occur, where domestic businesses grow in order to supply the MNC. Eventually, some domestic businesses are so large that they start to invest abroad themselves.
what are the two types of inflations
demand pull
cost push
factors impacting exchange rates
change in demand
external shocks
interest rates
