Economics Theme 2.4.3 Flashcards
What are the advantages to specialisation
Specialisation increases output as economic units become more effective and efficient in what they produce due to:
Greater understanding of the requirements of production
Each economic unit can specialise in what they are best at
Efficient use of time as there is no switching between tasks
Technical economies of scale as capital equipment is used to produce goods and services
What is specialisation
Occurs when an individual, firm, or country produces a narrow range of goods or services.
Why is specialisation good for intenational trade
The increased output can then be exchanged for other goods and services that the economic unit is not as good at producing
Specialisation allows for the exchange of goods and services between the economic units
What are the disadvantages of specialisation
Work can become monotonous
This can affect quality and productivity
Can increase absenteeism
May be limited by the size of the market
Small firms can not afford to introduce specialisation
Threat of structural unemployment if an industry goes into decline
Reduces flexibility of the workforce
Production flows may be stopped affecting the ability to meet demand
What are the benefits of specialisation by countries
Allows for trade
Improved national income (GDP)
Economies of scale leading to lower costs
Greater choice for consumers
Better quality goods
Interdependence leading to better relations between countries
What are the costs of specialisation by countries
Over-reliance on a limited number of industries
Risk of structural unemployment
Reliance on other nations
Threat of external factors e.g. political unrest or natural disasters can cut off supplies
Less developed countries may be discouraged from moving into new industries or specialising in tertiary industries
What is absolute advantage
Absolute advantage is a situation where a country can produce a good or service using fewer resources than that of another country. They can produce cheaper
What is comparative advantage
Comparative advantage is therefore where a country can produce a good at a lower opportunity cost than that of another
What is the world trade organisation
stablished in 1995, its purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers
The WTO is the only international agency overseeing the rules of international trade
It polices free trade agreements and settles trade disputes between governments and organises trade negotiations
WTO decisions are absolute and every member must abide by its rulings
There are currently 160 members
Most Favoured Nation (MFN) status is required for all members providing trade advantages such as reduced tariffs
What are trading blocks
Trading blocs are when the governments of a group of countries agree to trade together freely i.e. normally with no trade barriers
The countries are normally grouped together geographically e.g. the European Union (EU)
The members of a trading bloc make preferential economic, and sometimes political, arrangements to boost trade within the member states
what are Preferential trade areas trading blocks
Preferential trade areas
Members agree to either reduce or eliminate trade barriers for a select number of goods or services, resulting in partial trade liberalisation
What are free trade areas trading blocks
Free trade areas
Members agree to either reduce or eliminate trade barriers for all goods and services, resulting in trade liberalisation
What are custom unions trading blocks
Customs unions
Members agree to the removal of trade barriers amongst themselves and a common approach to trade barriers when dealing with countries outside of the bloc
In a sense the bloc is now acting as one homogenous group
what are common markets trading blocks
Common markets
Members agree to the removal of trade barriers as well as the freedom of movement of factors of productions within the bloc
Often also involves the agreement of common economic policies
What are economic unions trading blocks
Economic unions
Comprises of the features of both a customs union and a common market, including common economic policies
What are the main trading blcoks
the EU eurpoean union
and NAFTA north american free trade agreement
SAFTA singapore american free trade agreement
ASEAN association of south east asian notion
SAARC SOUTH ASIAN ASSOCIATION OF REGIONAL COOPERATIION
What is a free trade area
A free trade area is a group of countries that have removed most or all tariffs and/or quotas
the eu is not a free trade area
What is custom union
A customs union will involve internal free trade amongst member states, but also includes a common external tariff
Each member of the customs union cannot pursue their own international trade policy, instead trade negotiations are conducted on behalf of all member states
The EU is the biggest customs union in the world with a 15.5% share of world trade
What is an SEM
Each member of the customs union cannot pursue their own international trade policy, instead trade negotiations are conducted on behalf of all member states
The EU is the biggest customs union in the world with a 15.5% share of world trade
What is the advantage of a single european market
Trade creation
Trade is encouraged within member states because there are no barriers, so additional trade is created within the block.
Competition
Stronger competitive forces within the SEM can drive productive and dynamic efficiency, which will benefit consumers.
Access to markets
The SEM creates a market of 28 countries and a population of over 500m, offering significant scope for firms to expand.
Freedom of movement
There is the right to live and work anywhere within the SEM without restriction which boosts labour mobility.
what are the disadvantages of a single european market
Trade diversion
The existence of the common external tariff, diverts trade away from the EU. Goods within the SEM may be more expensive, and this could damage consumer welfare.
Monopolies
In some markets e.g. gas and electricity, tariff has seen significant merger activity and the creation of large monopolies seeking to exploit the available economies of scale.
Unemployment
In some countries, workers may lose their jobs as production is transferred to member states with lower labour costs.
Cost
Membership of the SEM costs the UK around £15billion per year.
What are the postitives from eu englagement
Trade diversion
The existence of the common external tariff, diverts trade away from the EU. Goods within the SEM may be more expensive, and this could damage consumer welfare.
Monopolies
In some markets e.g. gas and electricity, tariff has seen significant merger activity and the creation of large monopolies seeking to exploit the available economies of scale.
Unemployment
In some countries, workers may lose their jobs as production is transferred to member states with lower labour costs.
Cost
Membership of the SEM costs the UK around £15billion per year.
What are the disadvantages from eu enlargement
Trade diversion
The existence of the common external tariff, diverts trade away from the EU. Goods within the SEM may be more expensive, and this could damage consumer welfare.
Monopolies
In some markets e.g. gas and electricity, tariff has seen significant merger activity and the creation of large monopolies seeking to exploit the available economies of scale.
Unemployment
In some countries, workers may lose their jobs as production is transferred to member states with lower labour costs.
Cost
Membership of the SEM costs the UK around £15billion per year.
how has globalisiation increased trade
It increases the overall level of economic welfare
To give consumers a wider range and choice of goods and services
To allow the exploitation of economies of scale, so that firms can benefit from increased production to sell in foreign markets
To encourage greater competition, which should encourage greater efficiency and technical innovation
what are the benefits of growth in trade
Increased overall global output
By using comparative advantage
Greater competition
Trade opens international borders, promoting a greater degree of competition
Employment opportunities
Export industries create employment through the expansion of aggregate demand
Encouragement of specialisation, leading to greater efficiency
If a country is to trade effectively it needs to specialise in order to compete, which drives down costs and unit prices
Improved quality of goods and services
Via increased competition and dynamic efficiency, the overall quality of goods and services can be enhanced
what are the disadvantages of the growth of trade
Over-specialisation
If a country aims to engage in trade, it will need to specialise, however if world demand falls, this can give an economy significant problems
Structural unemployment
Over-specialisation may create structural unemployment, which may be magnified in particular regions in the UK
Infant industries
Some countries are concerned that infant and new industries struggle to compete with MNC’s, thus creating local problems and limited employment opportunities as firms struggle to establish themselves
Dumping
Countries that enjoy significant absolute advantages in the production of certain goods, often agricultural, may sell their surpluses at very low prices, and drive local producers out of the market
Environmental concerns
The process of transporting large quantities of goods around the world is costly and uses up significant quantities of scarce resources
what are visuables
Visibles are physical or tangible products e.g. a car or a television, you can touch them
We often call these products goods
what are invisables
Invisibles are non physical or intangible e.g. financial consultancy or teaching, you can’t touch them
We often call these products services
what is the effefct on trade for a strong econmy
A strong economy will import goods and services in order to meet its needs
This might lead to an increase in domestic consumption
However, it might be components or raw materials required in the production process for goods and services
These products might then be exported
what is the effect on trade if a country increases productive capacity
If an economy increases its productive capacity by utilising the factors of production this will allow it to increase supply to the rest of the world
This will lead to an increase in exports
Of course, countries will need to supply goods and services that are in demand to be able to do this
what is the effect on trade for newly rich countries
increasing their demand for goods and services
These include the BRICS nations of Brazil, Russia, India, China and South Africa who had 44% of the global population in 2013
what country has largest amount of inports and exports
China is the biggest economy in terms of global exports
They have used their low costs to supply everything from textiles to electronics
As China sees economic growth their costs will increase e.g. higher wage costs making it more difficult to maintain demand for exports
Many countries utilise their natural resources in order to export e.g. Saudi Arabia is oil rich
why do exports increase
Real GDP of other countries increases
Changes in taste and fashion lead to interest in products
Price inelastic exports are likely to see a fall in volume sales but an increase in total revenue
Productive capacity increases allowing for greater sales of a product
Product differentiation leads to greater demand for products
how has imports improved quality of live
This has led to an influx of cheap imports from countries that have an advantage in producing these goods and services
Low wage economies have produced goods such as textiles and cheaper electronics that have undercut UK based firms and led to a decline in these industries in the UK
These goods have led to an increase in living standards as we buy more at lower prices making our income go further
However, many workers have suffered as traditional industries have declined
