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Economics iGCSE > 6.2 - Globalisation, Free Trade & Protection > Flashcards

6.2 - Globalisation, Free Trade & Protection Flashcards

1
Q

Globalisation

A

The economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology & finance

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2
Q

What has globalisation lead to/impacted?

A
  • impacted national cultures
  • spread ideas
  • speeded up industrialisation in developing nations
  • led to de-industrialisation in developed nations
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3
Q

De-industrialisation

A

The process by which manifacturing declines in a society/region as a proportion of total economic activity. Usually accompanied by a rise in the proportion of those working in the tertiary sector.

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4
Q

Four main characteristics of globalisation

A
  1. Increasing foreign ownership of companies
  2. Increasing movement of labour and technology across borders
  3. Free trade in goods/services
  4. Easy flow of capital (finance) across borders
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5
Q

Multinational corporation

A

A business that has production facilities in two or more countries e.g. Apple

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6
Q

Advantages of MNCs (name 4)

A
  • Economies of scale
  • Increased profit
  • Create employment
  • New markets
  • Reduced transportation costs
  • Good risk management
  • Tax incentives
  • Avoidance of protectionism
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7
Q

Economies of scale (advantage of MNCs)

A

Global operation -› increase their output -› benefit in lowered costs from economies of scale

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8
Q

Create employment (advantage of MNCs)

A

New jobs in host country -› rease income for workers -› improve standard of living of locals

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8
Q

Increased profit (advantage of MNCs)

A

Much of profit is sent back to home country -› benefitting society (though debatable whether they have offshore bank accounts and do not send money back)

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9
Q

New markets (advantage of MNCs)

A

Identify potentional markets -› begin to sell there -› increase product diversity

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10
Q

Reduced transportation costs (advantage of MNCs)

A

MNCs set up facilities close to their customers -› lowers transportation cost which would occur as customers travel to the company

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11
Q

Risk management (advantage of MNCs)

A

Selling in many national markets globally -› reduced risk of failure

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12
Q

Tax incentives (advantage of MNCs)

A

MNCs able to increase profits by setting up in countries with low corporation tax

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13
Q

Avoidance of protectionism (advantage of MNCs)

A

MNCs established bases in countries that are operating protectionsim measures -› thus avoid measures (such as import tariffs)

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14
Q

Disadvantages of MNCs

A
  • Worker exploitation
  • Resource plundering
  • Political power
  • Reduce competition
  • Lack of local knowledge/culture
  • Over-reliance on MNCs for jobs
  • Diseconomies of scale
  • Exchaneg rate fluctuations
  • Negative externalities
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15
Q

Worker exploitation (disadvantage of MNCs)

A

Many provide poor working conditions and pay very low wages -› sweathsops, depreciating standard of living

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16
Q

Resource plundering (disadvantage of MNCs)

A

Many extract large quantities of host nation natural resources and provide very little compensation

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17
Q

Political power (disadvantage of MNCs)

A

Many enjoy revenue that is higher than the GDP of the host country -› gives immense political power which can be used to their benefit

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18
Q

Reduce competition (disadvantage of MNCs)

A

So large that they out-compete domestic firms in host country -› puts many firms out of business -› reduces competition -› increase unemployment

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19
Q

Lack of local knowledge/culture (disadvantage of MNCs)

A

May result in problematic local relationships or flawed advertising campaigns/product offerings

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20
Q

Over-relaince on MNCs for jobs (disadvantage of MNCs)

A

Developing nations place too many workers into MNCs -› if they leave it creates significant unemployment

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21
Q

Diseconomies of scale (disadvantage of MNCs)

A

Challenges of operating a business over different time zones and cultures can create diseconomies

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22
Q

Exchangerate fluctuations (disadvantage of MNCs)

A

Unexpected exchange rate fluctuations can have severe impacts on cost and profits for they operate transnationally

23
Q

Ngegative externalities (disadvantages of MNCs)

A

MNCs may disregard local environment for it is not theirs -› pollution and distruction of wildlife

24
Q

International trade

A

The exchange of goods & services between countries

25
Q

Free international trade

A

When there is no government intervention (quotas, taces, tarriffs etc.) to reduce or limit trade

26
Q

Benefits of free trade (name and explain 4)

A
  • Greater choice: standard of living improves
  • Lower prices: international competition lowers prices giving way to higher spending
  • International cooperation: trade helps countries build better relationships -› lower levels of hostility
  • Flow of new ideas: innovative ideas/technology can be shared internationally
  • Access to resources: increase access to raw materials through imports -› increase in output and decrease in costs
  • Increased efficiency: inernational competition -› most efficent firm emerges -› improves use of global resources
  • Economic growth: exports are key component of GDP -› increase can lead to econ. growth
  • Economic development: increased output -› lower levels of unemployment -› higher incomes and standard of living
27
Q

Protectionism

A

Government policies that restrict international trade in order to protect domestic industries

28
Q

Reasons for protectionism (name and explain 3)

A
  • to protect infant industries that would be unlikely to succeed at start-up due to global competition
  • to support sunset industries (declining industries) and help limit the economic damage which would occur if they closed
  • to maintain strategic industries (energy, defence, agriculture etc.) where being reliant on exports would create vulnerabilities
  • to escape dumping: MNCs sell products at an unfairly low price in foreign markets
  • to protect employment from being over-reliant on MNCs
  • to correct a current account deficit, an impalance where imports ‹ exports
29
Q

Methods of protectionism (5)

A
  • tariffs
  • subsidies
  • quotas
  • embargoes
  • administrative barriers
30
Q

Tariff (meaning)

A

A tariff is a tax on imported goods/services (customs duty)
* usually reduces the global demand for that product

31
Q

Tariff affect on domestic producers targeted by the government action

A
  • Before: less competitive and produce less
  • After: increase their outpur
  • May need workers to produce more -› unemployment falls
32
Q

Tariff affect on domestic producers who are connected to the targeted industry

A
  • Bafore: able to purchase raw materials at cheaper proce
  • After: cost of production increases resulting in a fall in output
  • May need less workers -› unemployment in related industries may rise
33
Q

Tariff affect on foreign producers

A
  • Descrease demand for their products -› output falls
  • Less supply from efficient foreign producers -› global allocation of resources is more inefficient
34
Q

Tariff affect on domestic consumers

A
  • Before: consumed more products at lower prices
  • After: consumed less products at higher prices
  • Standard of living worsened as the value of their income is eroded with higher prices
35
Q

Tariff affect on the government

A
  • After: government recieves tax revenue from each unit imported
36
Q

Quota (meaning)

A

A government-imposed trade restriction limiting the number or value of goods a nation imports or exports

37
Q

Quota affect on domestic producers

A
  • increases their output
  • raises the selling price
  • increases their revenue
38
Q

Quota affect on foreign producers

A
  • decrease their ouput
  • those firms who manage to export in quota recieve a higher pice for their sales
39
Q

Quota affect on consumers

A
  • higher prices and less choice
40
Q

Quota affect on the government

A
  • they do not recieve any tariff revenue
  • may receive higher tax revenue at the end of the financial year when domestic firms pay corporation tax
41
Q

Quota affect on standard of living

A
  • reduced for consumer: higher prices erode purchasing power of income
42
Q

Quota affect on equality between firms

A
  • domestic firms can compete more equally
43
Q

Subsidy (meaning)

A

An amount of money paid to a firm by the government per unit of output, as a form of support
* lowers the cost of production

44
Q

Subsidy affect on domestic producers

A
  • decreases cost of production
  • increases output
  • increases inernational competitiveness
45
Q

Subsidy affect on foreign producers

A
  • makes it harder for them to compete with domestic firms
46
Q

Subsidy affect on consumers

A
  • lowers prices - greater purchasing power
47
Q

Subsidy affect on the government

A
  • costs the government the amount of the subsidy
  • there is an oppirtunity cost associated with every subsidy provided
48
Q

Embargo (meaning)

A

An embargo is a complete ban on trade with a certain country usually as the result of political fall out

49
Q

Embargo affect on domestic producers

A
  • increases output due to less competition
50
Q

Embargo affect on foreign producers

A
  • unable to legally trade with the country
  • lose sales and profit
  • may go out of business or have to reduce workers
51
Q

Embargo affect on consumers

A
  • prices will rise
  • in some cases the product may no longer be available at all
52
Q

Embargo affect on the government

A
  • has to spend money enforcing the embargo
53
Q

Administrative barriers (meaning)

A

Strategies used to create barriers to trade using less obvious methods

54
Q

Examples of administrative barriers (4)

A
  • health and safety reguations - restrict imports of certain products
  • product specification - size, style etc.
  • environmental regulations
  • product labelling - can be expensive for firms to apply and may limit desire to sell into certain markets

Economics iGCSE (27 decks)

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