ECON4 Globalisation and Trade

Question 1

Define globalisation

Answer 1

Definition - The ever-increasing integration of the world’s economies (national/regional/local) into a single international market

Question 2

What are the key characteristics of globalisation?

Answer 2

More trade in G+SFree movement of capitalLabour - migration and specialisationinterchange of intellectual capitallarger trading agreements

Question 3

Causes of globalisation?

Answer 3

ContainerisationLess protectionismThe death of distance/ITeconomies of scalebusiness demandsinternational financial flowslegislation

Question 4

Key benefits of globalisation

Answer 4

tech innovationFDIEconomies of scale

Question 5

Key disadvantages of globalisation

Answer 5

ineqeuitable distributionthreat to sovereignty and cultural identityinterdependence

Question 6

types of tax avoidance

Answer 6

transfer pricingmoving production to low tax countrylow tax head office

Question 7

benefits of FDI

Answer 7

can trigger multiplierincreases R&D New jobsProductivityIncrease in export capacity

Question 8

Disadvantages of FDI

Answer 8

profits may not go to host countryland grabslow ehtical standardvolatilelow quality jobs

Question 9

Why are their MNCs?

Answer 9

barriers to entryeconomies of scaleicnreased innovationglobal brandingpatentinggain politcal influence

Question 10

define footloose capitalism

Answer 10

Fickle companies - may leave quickly if things change (however, this can be difficult for manufacturing)

Question 11

Summary of inequality and globalisation

Answer 11

Decreases inequality between countriesIncreases inequality within countries

Question 12

What is comparative advantage

Answer 12

One country has a lower opportunity cost of producting than another

Question 13

What is absolute advantage?

Answer 13

A country can produce a good more efficiently (less goods and services than another country)

Question 14

What happens to PPF when two countries are trading at a favourable exchange rate

Answer 14

PPFs pivot out and become parallel

Question 15

What would the specialisation diagram look like if a country has absolute advantage in one of the goods and the other country had the absolute advantage in the other

Answer 15

Question 16

How do you calculate the opportunity cost of good A in a trade diagram?

Answer 16

Find what’s the price of each good for a country.

Country A could Good A for £20 per unit or Good B for £10 per unit

Therefore, the opportunity cost of producing Good A = amount produced of Good B/amount of produced of Good A = -.5

Essentially shows for each good of A you have to give up 0.5 of Good B

Question 17

How can you use a trade diagram to calcualte the COST of exchange?

Question 18

What theory opposes Adam Smith’s specialisation?

Answer 18

Theory of comparative advantage

Question 19

Name 3 assumptions of theory of comparative advantage

Answer 19

no transport costsproduction costs/tech costs constant2 economies 2 goodsmobile factors of productionhomogenous goodsno barriers to tradeperfect knowledge

Question 20

What are the primary determinates of a comparative advantage

Answer 20

quantity and quality of production

Question 21

What 4 factors influence the pattern of trade?

Answer 21

comparative advantageEmerging economiesTrading blocs/agreementsexchange rates

Question 22

What can be used to measure trade openess

Answer 22

ratio of trade to GDP = (X-M)/GDP

Question 23

How has production changed? 3

Answer 23

Fragmentation of productiondigitilisationrise in automation

Question 24

2 benefits of trade

Answer 24

Reduced costs - comparative advantage specialisationMore choice

Question 25

Risks of trade 2

Answer 25

overdependenceloss of culture and sovereignty

Question 26

formula for terms of trade

Answer 26

index of X prices/index of M prices *100

Question 27

SR determinates of Terms of trade

Answer 27

change in ERinflationchange in demand

Question 28

LR factors effecting terms of trade

Answer 28

productivitychange in income

Question 29

What does a rise in Terms of trade mean

Answer 29

prices of exports rise and prices of imports fall- buy more imports per export- may worsen balance of payments (depends on elasticity)

Question 30

To see how elasticity affects balance of trade what can we look at?

Answer 30

Export market