4.1.2 Specialisation and Trade

Question 1

what is an absolute advanatge?

Answer 1

being able to produce more of a good than another country

Question 2

what is the comparative advantage?

Answer 2

a country has a comparative advatnage in the production of a good if they can produce it at lower opportunity cost than another country

if they have a comparative advanatge then they should do that

Question 3

how do you calculate comparative advantage in tables?

Answer 3

• calculate ratio of 1 and whoever has lower has the comparative advantage
  if a country has comparative advatange in good A then other will have in good B

Question 4

Question 5

Question 6

what is the theory of comparative advantage?

Answer 6

“if countries specialise in the production of the goods in which they have a comparative advantage, global output will increase”

Question 7

what are the 3 assumptions of the theory of comparative advantage?

Answer 7

1. average cost of production is constant
2. no trade barriers
3. no transport cost

Question 8

why may the avearge cost of production not be constant?

Answer 8

increased specialisation might result in risng average costs caused by diseconomies of scale

Question 9

what are the 3 limitation of the tehory of compartive advatnage?

Answer 9

1. specialisation may increase average cost of production (diseconomies of scale)
2. trade barriers might distort comparative advantage
3. transport costs may distort comparative advanatage

Question 10

what are the advatnages of specialsation and trade?

Answer 10

1. the theory of comparative advantage states that specialisation and trade leads to an increasein global ouput which will increase living standards
2. allows to sell to international markets, may benefit economies of scale
3. lower prices (eocnomies of scale, SRAS) for consumers and more choice

Question 11

what are the disadvanatges of specialisation and trade?

Answer 11

1. the benefits of specialisation and trade is based of unrealsitic asumptions (if increasedproduction costs/ trade barriers/ transport costs then output may not actually increase )
2. may lead to overdependance on imports and (exports which means they are not diversified, making them more vunerable)
3. may lead to demotivation, decreasse in productivity, increasing prices

Question 12

what is globalisation?

Answer 12

increased integraion of different economies arounf the world

Question 13

what are the 5 characteristics of globalisation?

Answer 13

1. increased international movement of labour
2. increased inetrnational movement of financial capital
3. incresed specialsation
4. increased international trade
5. increased trade to GDP ratios

Question 14

what is the increased movement of international of labour?

Answer 14

working in a different country to the one yo were born in

Question 15

1. what is FDI?
2. what is financial capital?.

Answer 15

financial capital= money
* FDI (foreign direct investment) is where one firm makes an investment into a firm in another country, to gain control over the foreign firm aka an international movement of finacial capital

Question 16

what is a TNC?

Answer 16

trans national corporation that operates in 2 or more countries

Question 17

what is a trdae to GDP ratio?

Answer 17

how high the value international trade is compared to the size of an economy

high ratio= higher depnandancy on international trade to survive

Question 18

why is specialisation a characteristic of globalisation?

Answer 18

specialisation in the good in which a country has comparative advantage will incresae global output

Question 19

what are the 4 causes of globalisation?

Answer 19

• improvements in transport
• improvements in IT
• containerisation
• trade liberalisation

Question 20

how have improvemnets in transport come about ?

Answer 20

availiability and speed of commericial airplanes have helped workers move

Question 21

how have improvements in IT come about ?

Answer 21

internet means easier to do FDI

Question 22

what is containerisation?

Answer 22

an efficent and relativley low cost system of transport that uses a common size of steel container to transport goods

790% increase in international trade

Question 23

what is trade liberisation?

Answer 23

reduction/ removal of trade barriers leading to increased international trade

Question 24

what is a trade barrier?

Answer 24

a restriction placed by a government/ country on the import of a foreign good. A common example is a tariff

Question 25

what 6 areas have faced the impact sof globalisation?

Answer 25

1. individual countries
2. governments
3. producers
4. consumers
5. workers
6. the enviroment

Question 26

what has been the impact of globalisation on individual countries?

Answer 26

• increase in living standards, output increased & GDP,
• overdependance

150 755 of wolrd in extreme poverty- now < 10%

Question 27

what has been the impact of globalisation on governments?

Answer 27

• increase in tax revenues, as trade to GDP ratios have increased, government collect from tarrifs–> more governmnet spending
• TNC’s can avoid tax through transfer pricing

Question 28

what is transfer pricing?

Answer 28

a method of pricng goods abd services transferred within TNCs in order to reduce the amount of corporation tax paid

Question 29

what is the impact of globalisation to producers?

Answer 29

• reduced costs through relocation (relocating production to places with cheaper wages)
• TNCs create higher barriers to entry, smaller fimrs are disadvantaged- cannot benefit from economies of scale

Question 30

what is the impact of globalisation on conusumers?

Answer 30

• lower prices and higher choice (reduction in production costs coz of economies of scale, increase in SRAS , lower prices )
• (arguably) negative effect on consumer hapiness, more items availiable more consumption, the diderot effect leads to wanting more and a decraese in happiness

Question 31

wht has been the impact of globalisation for workers?

Answer 31

• increase in job opportuntities due tso improvements in IT and transport
• structural unemployment coz countries specialise if they have a comparative advantage

Question 32

what is the impact of globalisation on the enviroment?

Answer 32

• increase in global cooperation to fight climate change, since more economic interpendance and relationshios between economies
• increase in global warming (more transport, more manufacturaing)

eg: Kyoto Portocal

Question 33

what are the advantages of trade liberalisation?

Answer 33

• Trade liberalisation → Increases imports → More capital and machinery required for development → Increases economic development
• Trade liberalisation → Increased specialisation according to comparative advantage → Increases productivity → Increases output → Increases competitiveness → Increases exports → Increases injections → Increases AD → Increases real GDP → Increases economic growth
• Trade liberalisation → Decreases tariffs → Decreases price of imports → Decreased prices for consumers → Increased ability to buy necessities → Increases economic development
• Trade liberalisation → Increases exports → Injection → Multiplier effect → Increases employment → Increases spending → Increases tax revenue → Increases AD → Increases government spending on development → Increases economic growth