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A Level Economics > 7.1: A Global Perspective: Globalisation and Trade > Flashcards

7.1: A Global Perspective: Globalisation and Trade Flashcards

1
Q

Globalisation

A

The ever increasing integration of the world’s local, regional and national economies into a single, international market

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2
Q

Factor’s contributing to globalisation

A

Trade in goods/services
Improved transport
Liberalisation of trade
MNCs
International flow of capital/financial markets
Communications and IT
End of Cold War -> emerging economies

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3
Q

Characteristics of globalisaltion

A

MNCs
Trade blocs
Dilution of culture
Inrease in international trade

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4
Q

Benefits of globalisation for consumers:

A

Cheaper price
More choice
Higher incomes

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5
Q

Drawbacks of globalisation for consumers:

A

Homogernised goods
Increase in price of commodities

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6
Q

Benefits of globalisation for producers:

A

Economies of scale -> lower costs
Specialisation
Increase target market

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7
Q

Drawbacks of globalisation for producers:

A

More competition
Dependence for trade
‘Footloose’ capitalism

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8
Q

Benefits of globalisation for workers:

A

Inrease in employment
Increased migration

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9
Q

Drawbacks of globalisation for workers:

A

Exploitation
Increase in structural unemployment
Geographical immobility

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10
Q

Benefits of globalisation for governments:

A

Tax benefits
Increase in FDI

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11
Q

Drawbacks of globalisation for governments:

A

Corruption
Tax avoidance

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12
Q

Benefits of globalisation for a country:

A

Reduce poverty
Immigration -> fill job shortages

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13
Q

Drawbacks of globalisation for a country:

A

Localised job loss
Dilution of culture
Current account deficit

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14
Q

Benefits of globalisation for the environment:

A

Dynamic efficiency by MNCs -> innovation + improved environmental practices

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15
Q

Consequences of globalisation evaluated (adavantages)

A

Costs fall -> price fall (micro)
Competition -> economic welfare (micro)
Reduced poverty
Balance of payments

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16
Q

Drawbacks of globalisation for the environment:

A

Diminishing resources (tragedy of the commons)
Pollution

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17
Q

Consequences of globalisation evaluated (disadavantages)

A

Pollution -> negative externalities (micro)
Harm to local/small producers -> loss of culture -> structural unemployment -> loose employment

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18
Q

Absolute advantage

A

When a country can produce a good or sevice in greater quantity for the same cost or the same quantity at a lower cost than another country

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19
Q

Comparative advantage

A

Exists when a country is able to produce a good more cheaply relative to other goods produced domestically than another country

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20
Q

Theory of comparative advantage

A

Countries will find it mutually advantageous to trade if the opportunity cost of production of goods differs

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21
Q

Net output gains

A

Increase in output comparative advantage exists + countries specialise

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22
Q

Advantages of trade in an international context:

A

Greater world output -> gain in economic welfare
A greater variety of goods and services could be produced
Outward shift in PPF curve

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23
Q

Disadvanatges of trade in an international context:

A

Over reliance of export of one good
Over use of non-renewable resources (tragedy of the commons)

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24
Q

Real world comparative advantage examples:

A

Saudi Arabia and oil
New Zealand and butter
Germany and cars

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25
Q

Gravity theory

A

Countries tend to trade with similiar countries with close geographical proximity

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26
Q

Pattern of trade

A

How we trade between countries and how these trade flows change

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27
Q

Factors influencing patterns of trade:

A
  • Compartive advantage i.e. developing countries have gained an advantage in the production of manufactured goods due to low labour costs
  • Emerging economies - due to collapse of communism, more countries involved in world trade
  • Growth of trading blocs and bilateral trading agreements -> trade creation - occurs when a country consumes more imports from a low cost producer, and fewer from a high cost producer
    trade diversion - occurs when trade shifts to a less efficient producer
    Changes in exchnage rates - SPICED, WPIDEC
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28
Q

Terms of trade

A

Measures the relative price of exports to imports in an economy

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29
Q

Balance of trade

A

The difference between the total value of exports compared to the total value of imports

30
Q

Terms of trade (index) =

A

(index of export prices / index of import prices) x 100

31
Q

What happens if the terms of trade index deteriorates?

A

Terms of trade have worsened

32
Q

What happens if the terms of trade index improves?

A

Terms of trade improved -> export price rises -> demand + comeptitiveness fall -> worsens balance of payments

33
Q

Why might terms of trade improve?

A

Specialisation in higher value exports
World real income levels may chnage in favour of this countries exports
Exchange rate appreciates causing import prices to fall
Fall in the world price of imported technology
Trade deal which lowers import tariffs or increases import quotas

34
Q

Why might terms of trade fall?

A

Can’t specialise in higher value exports
World real income levels may change against a countries exports
Exchange rate depreciates cauisng import prices to rise
Rise in world price of imported technology
Trade deal which rises import tariffs or decreases import quotas

35
Q

What can terms of trade be used to measure?

A

Welfare of an economy -> a fall in terms of trade may lead to a fall in living standards

36
Q

Free trade areas

A

A group of countries who agree to trade without barriers but mantain their own individual barriers with countries outside that area

37
Q

Customs union

A

A free trade area but uses a common external tariff (CET) against the rest of the world

38
Q

Pros of regional tarde agreements

A

Encourages specialisation based upon comparative advantage
Tarde creation

39
Q

Cons of regional trade agreements

A

Trade diversion
Ineffecient producers in the bloc are protected

40
Q

Monetary union

A

Countries use the same currency (EURO)

41
Q

Conditions for the success of a monetary union

A

Economically integrated
ECB regulates the rate of interest and monetary policy
Use the same interest rate i.e. aim of inflation to be below 1.5%

42
Q

Bilateral trade agreement

A

A regional trade agreement between two countries

43
Q

Trading bloc

A

A group of countries that have signed an agreement to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves

44
Q

Regional trade agreement

A

An agreement between at least two countries to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves

45
Q

Common market

A

A customs union where in addition both labour and capital have freedom of movement whithin the area and where product standards and laws concering free movement of goods and services are common between countries

46
Q

Trade creation

A

The replacement of more expensive domestic production or imports with cheaper output from a partner within the trading bloc

47
Q

Trade diversion

A

The replacement of cheaper imported goods by goods from aless efficient trading partner within a bloc

48
Q

Non-tariff barriers

A

Measures imposed by a government that have the effect of inhibiting international trade

49
Q

World Trade Organisation (WTO)

A

Promotes world trade through reducing trade barriers and policing existing agreements -> settles trade disputes by acting as a judge

50
Q

Conflicts between WTO and Regional Trade Agreements (RTA)

A
  • Trading blocs might distort world trade or adversely affect those who do not belong to them
  • Setting up a customs union or a free trade area could be seen to violate the WTO’s principle of having all trading partners treated equally (especially common if a tariff is applied). However, they can compliment the trading system and the WTO strives to ensure that non-members can trade freely and easily with the member of a trade bloc
51
Q

Reasons for restrictions on free trade

A

Reduce trade deficit
Infant and sunset industries need protecting
Protect domestic jobs

52
Q

Quota

A

Places a quantity (suppy) limit on the volume of imports of a product

53
Q

Subsidy

A

Form of financial help given to domestic producers in order to lower their costs and help them compete in international markets

54
Q

Non-tariff measures

A

Administrative barriers
Exchange rate manipulation
Embargoes

55
Q

Impact of protectionist policies for consumers:

A
  • Less choice, higher price, loss of consumer surplus and economic welfare
    + Supports local business -> help communtiy
56
Q

Impact of protectionist policies for producers:

A

+ Reduce competition, protect domestic firms and jobs
- Derived demand cause prices of other goods to rise, infaltionary (cost-push), increase costs of production -> less competitive

57
Q

Impact of protectionist policies on the government

A

+ Tax revenue, jobs protected -> don’t pay benefits, reduce current account deficit
- Lead to government failure, props up inefficient business

58
Q

Impact of protectionist polices on living standards

A
  • WTO states it negatively affects living standards as stifles growth, increase in price of goods and services -> not everyone can afford
    + Protects jobs -> protects income -> improves living standards in short term
59
Q

Impact of protectionist policies on equality

A

+ Protect income for farmers (raises incomes which are often low)
- Tariffs are regressive -> damaging to those on low and fixed incomes -> may increase wealth and ineqaulity

60
Q

Balance of payments

A

Financial transactions bewteen one country and another

61
Q

Three accounts in balance of payments

A

Current
Capital
Financial

62
Q

What is in the current account?

A

Trade in goods
Trade in services
Net income flows (primary)
Net transfers (secondary)

63
Q

Reasons for a current account deficit

A

High marginal propensity to import
Strong pound
Favourable terms of trade
Inflation -> cost of production rise -> prise rises -> competitiveness falls -> exports fall
Lack of productivity
Emerging economies = competitive
Deindustrialisation

64
Q

Reasons for a current account surplus

A

Low marginal propensity to import
Weak pound
Unfavourable terms of trade
High productivity

65
Q

Is a deficit a problem?

A

No - if you can balanc it out with current account
Dpends why i.e. if its exchange rates = no problem, productivity = problem

66
Q

Capital account

A

Repatriation of financial capital from people entering and leaving UK plus government transfers such as foreign aid

67
Q

Financial account

A

Records the majority of flows of financial capital into and out of a country

68
Q

Long-term direct capital flows

A

Foreign direct investment - net acquisition of productive assets by UK firms overseas and by foreign firms in UK i.e. Nissan in Sunderland
Net portfolio investment - purchase of financial assets i.e. shares

69
Q

Short-term direct capital flows

A

Hot money (foreign exchange markets)

70
Q

The two main policies to reduce expenditure and switiching (3D’s)

A

Expenditure reducing policies: Deflation - reducing AD for goods and services i.e. rise in income tax, raise interest rates
Expenditure-switching policies: Direct control/devaluation - encouraging consumers to swithc their spending to domestic goods by changing the relative prices of UK and overseas output i.e. by devaluation or tariffs and quotas

71
Q

Significance of global trade imbalances

A
  • Countries are interdependent -> surplus/deficit in current may indicate an unbalanced economy -> over reliant on other economies -> difficult to attract sufficent financial flows in order to finance a current account deficit -> unsustainable in
    long run
  • UK reliant on other economies - not an issue if financial and current account on surplus
  • In EUROZONE, deficits in current account concern as they have a fixed exchange rate
  • Surplus indicates low consumer spending and a low savings ration. Could mean consumers enjoying fewer goods than they could -> lowers living standards
  • Significance depends why there is a deficit - some countries happy to have one as it allows them to have a financial account surplus to import other goods
72
Q
A

A Level Economics (15 decks)

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