6.2 Globalisation + free trade

Question 1

Define globalization

Answer 1

increases in worldwide trade and movement of people and capital between countries.

Question 2

Define an MNC

full form

Answer 2

Multinational Corporations - Businesses which have their operations, factories and assembly plants in more than one country

Question 3

Adv of MNCs to home country (of the MNC)

Answer 3

opportunities for marketing

employment opportunities to people of the home country to work abroad

favourable balance of payments - in the long run they export products

Question 4

Adv to host country (country where MNC has set up)

Answer 4

employment and training to the labour force in the host country.

Transfers of skills and expertise - increases the quality of host country’s labour force

Increase in GPD

Increase competition - local businesses become more efficient

extend consumer and business choice

MNCs bring with them efficient business practices, technologies and standards

significant tax revenues

Question 5

Disadv to home country of MNCS

Answer 5

MNCs transfer capital from the home country to various host countries - unfavourable balance of payments.

MNCs may not create employment opportunities to the people of home country

Invesmtnets in foreign countries may be more profitable - MNCs may ignore home country’s industrial and economic development

Question 6

Disadv to Host country of an MNC

Answer 6

Domestic businesses may not be able to compete

MNCs may not act ethically or in a socially responsible way

Profits earned by MNCs may be remitted back

Employment created is usually unskilled and assembly line jobs

Drain natural resources

Question 7

Define free trade

Answer 7

there are no restrictions for trade between economies.

Question 8

What are the adv of international trade refered to as

Answer 8

Gains from trade

Question 9

Define international trade

Answer 9

Movement and exchange of physical goods, services and money across international border

Question 10

What is an open economy

Answer 10

National economy that engages in international trade with other economies

Question 11

Advantages of free trade

Answer 11

Allows countries to benefit from specialisation

Increases consumer choice

Increases competition and efficiency

Creates new business opportunities

Enables firms and economies to benefit from the best workforces, resources and technologies

Increases economic inter-dependency - reduces potential for international conflicats

Question 12

Disadvantages of free trade

Answer 12

Free trade may reduce opportunities for growth in less-developed economies and threaten jobs in developed economies.

Causes rapid resource depletion and climate change

Exploitation of workers and the environment

Income inequality worsens

Question 13

What is protectionism

Answer 13

involves the use of trade barriers by governments to restrict international market access and competition

Question 14

List the trade barriers

Answer 14

Tariffs
Subsidies
Quotas
Embargo
Excessive quality standards

Question 15

Explain tariffs

why are they imposed

Answer 15

Indirect taxes on imported goods that make them more expensive

imposed in order to discourage domestic consumers from buying them.

Question 16

Explain subsidies

Answer 16

government allows subsidies to domestic producers so that they can increase their output and reduce costs and in turn reduce prices

Question 17

Explain quotas\

Answer 17

this is a limit on the number of imports allowed into a country in a given period

Restricting supply causes a shortage which pushes prices up

Question 18

Explain embargo

Answer 18

this is a complete ban on imports of a good to a country.

Question 19

Explain execessive quality standards

Answer 19

Govts impose unreasonably high quality standards along with constantly changing regulations so that businesses can’t keep up and imports reduce

Question 20

What is an importing lisence and how do govts use it

Answer 20

Legal document issued by a govt custom’s authority, approving the importation of certain goods into its territory

Govts can selectively issue these or make applications time-consuming and difficult to complete to cause delays

Question 21

Reasons for protectionism

Answer 21

To protect infant/sunrise industries

To protect sunset industries

To protect strategic industries

To limit over-specialization

To protect domestic firms from dumping

To correct a trade imbalance

Question 22

What are infant industries and why do govts want to protect them

Answer 22

industries that are new and are hoping to grow

Lesser competition from foreign firms will increase their chances of survival and growth.

Question 23

What are sunset industries and why do govts want to protect them

Answer 23

those industries that are on their declining stage

Govts want to reduce the rate of decline since those sudden closure of those firms may result in high unemployment

Question 24

What are strategic industries and why do govts want to protect them

Answer 24

Vital industries such as transport, energy defence etc.

governments will want to protect these so they are not dependent on supplies from overseas.

Question 25

What is ‘dumping’

why do govts want to prevent it

Answer 25

a kind of predatory pricing, that occurs when imports are sold at a price either below the price charged in the home market or below its cost of production.

domestic firms will be unable to compete and be forced to go out of business. Once this happens, the foreign firms will raise their prices and enjoy monopolistic power.

Question 26

How can protectionism correct trade imbalances

Answer 26

reduce the imports coming into a country and thus reduce expenditure on imports by domestic consumers.

Question 27

Consequences of protectionism

Answer 27

They restrict consumer choice.

They restrict new revenue and employment opportunities.

cost-push inflation.

They protect inefficient domestic firms:

Other countries may retaliate