7.5e - Economy (International Trade) Flashcards
European Union definition
A collection of 28 European countries who have agreed to unite their economies
What does the EU allow free movement of between its member states?
- Labour
- Capital
- Goods
- Services
Advantages to UK businesses of the EU:
- Large potential market
- Economies of scale
- More competition (increased efficiency)
- Wider labour force
- Can move business to other parts of the EU
Disadvantages to UK businesses from EU:
- More legislation
- More competition
- Low wage rates in other countries
- May lose capital and labour to countries who offer better terms
What does the EU customs union ensure?
All goods entering the EU have the same custom duties applied to them
Examples of free trade areas:
- EU
- ASEAN (Association of South-East Asian Nations)
- NAFTA (North American Free Trade Area)
- Tripartite Free Trade Area
Protectionism definition
When a government protects businesses and jobs from foreign competition by giving them subsidies, while imposing tariffs and quotas on imports
What are the methods of protectionism?
- Tariffs
- Quotas
- Embargoes
- Non-tariff policies
Tariff definition
An additional tax placed upon the price of a product to make it less competitive
What are the different types of tariffs?
- Ad valorem tax (added percentage)
- Specific tax (added fixed amount)
Quota definition
A limit on the amount that can be imported into the country (can be a fixed value of % of the market share)
Embargo definition
The complete banning of a product
Non-tariff policy definition
Subtle attempt to restrict imports (e.g. more red-tape)
Advantages of protectionism:
- Protects domestic business from foreign competition
- Keeps money from leaving the country via imports so GDP doesn’t fall
Disadvantages of protectionism:
- Prices of imported goods rise due to decreased supply
- If you restrict a country’s trading in your country, they might restrict your trading in theirs
Globalisation definition
The process that allows businesses to operate all over the world
Methods of international growth:
- Exporting direct to international customers
- Selling via overseas agents or distributors
- Opening an operation overseas
- Joint venture or buying a business overseas
Advantages of globalisation:
- Higher profits
- Extend product life-cycles by marketing in new countries
- Avoid tariffs
Disadvantages of globalisation:
- More competitive market
- Low costs of production in some countries creates a disadvantage for UK businesses
- More legislation
Why is globalisation increasing?
- Internet allows businesses to communicate
- Air travel and giant cargo ships
- EU citizens can work in any other EU country
Emerging market definition
A country or area that has the capacity to grow
Examples of emerging markets:
- BRIC (Brazil, Russia, India, China)
- MINT (Mexico, Indonesia, Nigeria, Turkey)
- CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey, South Africa)
Advantages of emerging markets:
- Lots of potential to sell to an expanding customer base
- Source of lower cost raw materials
- Could become a pioneer and leader in an economy that is just getting off of the ground
Disadvantages of emerging markets:
- Potentially weak infrastructure
- Corruption
- Increasingly competitive market
