Economics Theme 3 Flashcards
1
Q
What is ‘Economic Growth’?
A
Economic growth is an increase in the production of economic goods and services in one period of time compared
2
Q
What is an ‘Emerging Economy’?
A
An emerging market economy generally is considered an economy that is transitioning into a developed market economy, and has some characteristics of a developed economy
3
Q
What is a ‘Developing Economy’?
A
A developing economy defines a country with a low human development index, less growth, poor per capita income
4
Q
What is a ‘Mature Economy’?
A
A mature economy is a country with a high human development index, higher economic growth, great per capita income, the economy of a nation with a stable population and slowing economic growth.
5
Q
What is ‘Purchasing Power Parity (PPP)’?
A
Figures that have been calculated to reflect the purchasing power of nations
6
Q
What are ‘Industrialized Economies’?
A
Economies that benefit from the increase in productivity that occurs when many people move from agricultural (primary) sectors to manufacturing (secondary) sectors
7
Q
What is ‘Technological Transfer’?
A
When MNCs locate to developing countries, trains those employees in order to create product, those employees go to other companies and train other people.
8
Q
What are ‘index numbers’ and why are they used?
A
Measures a net change in a variable
9
Q
Formula for calculating Index Number
A
Value to be converted/value of base index number x 100
10
Q
What are ‘Nominal Values’?
A
Values that haven’t been adjusted for inflation
11
Q
What are ‘Real Values’?
A
Values that have been adjusted for inflation
12
Q
Formula for Real Value
A
Nominal Value x 100 / price index
13
Q
What are ‘Trade Barriers’?
A
Things that make trade more difficult
14
Q
What are ‘Tariffs’?
A
Tax on imports
15
Q
What are ‘Quotas’?
A
a ceiling on imports of a product
16
Q
What is ‘Trade LIberalisation’?
A
The process of reducing or eliminating restrictions on fooreign trade
17
Q
What is ‘FDI’?
A
When a company takes ownership of a company in another country
18
Q
What is ‘Reshoring’?
A
Manufacturing processes that are outsourced to low wage economies and brought back after to its original country
19
Q
What are ‘Intermediate Goods’?
A
An intermediate good is a product used to produce a final good or finished product
20
Q
What is a ‘‘Supply Chain’?
A
A sequence of different processes to make a product
21
Q
What is ‘Digital Data’?
A
Information distributed electronically
22
Q
What is ‘Trade Creation’?
A
When trade between bloc members increase as trade barriers have been reduced, between them.
23
Q
What is ‘Trade Diversion’?
A
When traders within a trading bloc reduce trade between non member countries as within trading blocs, there’s less barriers and is tariff free
24
Q
What is ‘Common External Tariff’?
A
A single set of tariffs that apply to all imports from outside the EU, into all EU member countries.
25
What is a 'Free Trade Area'?
An area in which countries freely trade with each other, however have their own independent policies on trading with the rest of the world
26
What is a 'Customs Union'?
Have internal free trade, an have a common agreement on trade with he rest of the world
27
What is a 'Common Market'?
Complete free trade internally and have a unified policy on trading with the rest of the world, but can also trade capital and labour
28
What is a 'Single Market'?
Similar to a single economy, all trade barriers are removed so labour, capital and goods can flow freely
29
Rank these in order on how freely trade can occur
- Common Market
- Free Trade Area
- Single Market
- Customs Union
- Free Trade Area
- Customs Union
- Common Market
- Single Market
30
Rank these in order on how freely trade can occur
- Common Market
- Free Trade Area
- Single Market
- Customs Union
- Free Trade Area
- Customs Union
- Common Market
- Single Market
31
What is 'Protectionism' and name 2 reasons it occurs?
When a country takes action to protect its own industries by restricting trade with other countries.
- Infant industries might need protecting. These are industries which are relatively new and need support
- Used to correct market failure, like demerit goods
-
32
What is 'Dumping'?
It occurs when manufacturers export a product to another country at a price below the normal price with an injuring effect.
If UK businesses started selling apples to the US for less than what they're worth in the US, then US apple producers would have a hard time selling their products to the domestic market.
33
What are 'Infant Industries'?
Industries with some prospect of profitability in the long run, provided they are given protection when starting out
34
What is a 'Bilateral Trading Agreement'.
A trading agreement between just two countries Beneficial as it very simple as it is only 2 countries.
35
What is a 'Multilateral Trading Agreement'?
When many economies export to a range of countries; China will buy office equipment from the UK, USA will buy toys from China and the UK will buy computers from the USA.
36
What is 'Exchange rate'?
The value of a currency when compared to another currency
37
Describe the impact of exchange rates on balance of payments
- SPICED
- WIDEC
- If the exchange rate falls, foreign countries will capitalise on the low valued £ and import from the UK, and the UK wouldn't import from most other countries as the £ is lower valued than others therefore there'd be a surplus in the balance of payments as there are more exports than imports in the UK
-and the same vice versa
38
Describe the impact of exchange rates on economic growth
Depreciation can make exports increase, meaning more injections in the circular flow of income, leading to economic growth
Appreciation can make imports increase, meaning more leakages in the circular flow of income, leading to more economic growth
39
Describe the impact of exchange rates on employment
Depreciation will increase exports, leading to more injections in the economy, meaning more AD and more jobs will be created to supply this demand.
Appreciation will increase imports, leading to more leakages in the economy, meaning less AD, and businesses won't need as many employees anymore
40
Describe the impact of exchange rates on FDI
FDI may decrease if depreciation is occurring as this will is a sign of a struggling economy
FDI may increase if appreciation occurs as this will be a sign of a strong economy
41
What is the 'Eurozone'?
A subset of EU countries that have a unified monetary policy; countries that use the euro
42
Name the 2 push factors for a business
why is it a push factor?
- Market saturation
- Excessive competition
43
What's a 'Push Factor'?
A situation which forces a business to seek international opportunities
44
What is are 'Pull Factors'?
opportunities that entice businesses to seek new opportunities
45
Name the 2 pull factors for a business
why is it a pull factor?
- The spreading of risk
- Economies of scale
46
What is 'outsourcing'?
Outsourcing is the business practice of hiring a party outside a company to perform services or create goods.
Apple outsourcing the creation of phone screens to Samsung
47
What is 'Off Shoring'?
Locating some or all parts of production to an foreign economy where costs of production are much lower
48
What is 'Capacity Utilization'?
The measure of how well a company uses its capacity
49
Name 3 factors influencing expansion into a market
- Levels and growth of disposable income
- Ease of doing business
- Infrastructure
- Political stability
- Exchange rates
50
Name 3 factors influencing the location of production sites
- Cost of production
- Skills and availability of labour force
- Government incentives
51
What is a 'global market strategy'?
An adaptation of a market strategy to target all locations
52
What is 'Glocalization'?
The adaptation of global marketing strategy to meet requirements of local geographic markets
53
What is 'Ethnocentricity'?
A marketing approach that doesn't take into account what countries they're selling in, this approach assumes the host nation is superior.
54
What is 'Geocentricity'?
A marketing approach that is undertaken in a global point of view. It doesn't take into account host nation or target nation wants and needs, rather, generalise and target the whole world
55
What is 'Polycentricity'?
A marketing approach where the promotion of the product is undertaken on the beliefs of the nation in which the businesses is operating in
56
Name 2 benefits of economic growth on consumers
- Income per capita increases; output person increases as more people are in employment, thus more people are earning money
- Consumers feel more confident in the economy, which increases consumption and leads to higher living standards
- Higher Standard of living, more gdp per capita, leads to more income per person, thus more consumption
57
Name 2 costs of economic growth on consumers
- There is likely to be higher demand-pull inflation, due to higher levels of consumer spending
- Law of diminishing returns; The benefits of more consumption (i.e. increase in consumption) might not last
-
58
Name 2 benefits of economic growth on firms
- As firms grow, they can
take advantages of the
benefits of economies of
scale.
- Firms will grow because of higher GDP per capita; more productivity
- Higher levels of
investment could develop
new technologies to
improve productivity
59
Name 2 costs of economic growth on firms
- Firms supplying inferior goods are likely to see a fall in sales; people will have more disposable income, so will buy luxury goods
- Menu costs as a result of higher inflation; a transaction cost incurred by firms when they change their prices to meet inflation
60
Name the benefit of economic growth on the government
- Due to more people earning, the government will gain more tax revenue
61
Name the cost of economic growth on the government
- consumption of demerit goods may mean the government must sped more on healthcare
62
Name the benefits of economic growth on the standard of living
- Higher incomes mean consumers will enjoy more goods and services of a higher quality
- Public services improve, since governments have higher tax revenues, so they can afford to spend on improving services
- economic growth could lead to the development of technology to produce goods and services more greenly.
63
Name the cost of economic growth on standard of living
- High levels of growth could lead to damage to the environment in the long run, due to increase negative externalities from the consumption and production of some goods and services.
64
What is 'comparative advantage'?
Countries being able to produce a good at a lower opportunity cost to others. thus trading with each other the things they're best at
65
What is 'Absolute Advantage'?
Absolute advantage occurs when a country can produce more of a good with the same factor inputs, i.e. time.
66
Name 2 benefits of an absolute/comparative advantages
- Greater world output, so there is a gain in economic welfare
- There is an increased supply of goods to choose from
- Lower average costs
67
Name the cost of absolute/comparative advantages
Countries could become over dependent on the export of one commodity; putting eggs in one basket
68
Name 3 benefits of a free market
- Countries can exploit their comparative advantage, which leads to a higher GDP using fewer resources
- More exports could lead to higher rates of economic growth
- Specialising means countries can exploit economies of scale, which will lower
their average costs
- Free trade increases economic efficiency by establishing a competitive
market
69
What are two benefits FDI brings
- Creating employment; investment into firms will mean expansion
- Innovation of technology; firms with more money will invest in R&D
70
Name 3 positive impact of trade creation on firms
and one negative
- Reduced transaction costs since there are no barriers to trade or no border controls.
- comparative advantage
- Enhanced competition can lead to firms being more efficient with he allocation of resources
- Increases in labour supply
-However, interdependence can mean that if a recession occurs in one country, it spreads across everywhere
71
Name and explain 2 types of restriction to trade
Tariffs
- Taxes on imports to a country, demand for domestic goods are increased
Quota
- Limits the quantity of a foreign produced good that is sold on the domestic market.
Subsidies to domestic producers
- This makes domestic goods relatively cheap compared to imports. It encourages domestic production to increase
72
Name and explain 2 non tariff barriers
Voluntary export restraints (VERs)
- When 2 countries agree to limit the volume of exports to one another over a period of time
Embargoes
- This is the complete ban on trade with a particular country. It is usually politically motivated
Excessive administrative burdens (‘red tape’)
- Excessive administration increases the cost of trading, and hence discourages imports
73
Name 3 Impacts of protectionist policies on the economy
- Protectionism could distort the market and lead to a loss of allocative efficiency. It prevents industries from competing in a competitive market.
- It imposes an extra cost on exporters, which could lower output
- Tariffs are regressive and are most damaging to those on low and fixed incomes, which could increase income and wealth inequality
-There is a risk of retaliation from other countries, so countries might become hostile
74
What is 'G20' and a pro and con of it
The G20 is comprised of 20 major economies, including USA, UK, France.
- Promotes economic growth and stability through policies that encourage trade
- There are different economic interests and situations
within the countries in the G20, so it could be difficult to coordinate policies
- Does not include the majority of countries
75
How does the WTO promote trade
- Promotes world trade through reducing trade barriers, settling trade disputes, by acting as the judge, and organises trade negotiations.
- If you don't follow the rules, you will be trade sanctioned
76
Name 2 cons of the WTO
- distort world trade and lead to inefficient allocation of resources as a result of policies such as the EU CAP.
- Some countries might argue that the WTO is too powerful, or that it ignores the problems of developing countries
- 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
77
What does the 'IMF' do ?
- Aims to promote monetary cooperation between nations, and monetary problems can be consulted in the institution
- Members can also borrow from the IMF, such as if they need to correct an imbalance in the balance of payments.
78
Describe the impact of exchange rates on AD
If the exchange rate appreciates, AD is likely to fall since imports become cheaper and exports become more expensive. Households are less likely to buy domestic goods, thus less money in the circular flow of income
- and vice versa
79
Describe the impact of exchange rates on rate of inflation
If the value of the pound increases, imports will be cheaper thus households are likely to spend more on foreign goods, thus results in leakages in the circular flow of income, thus less AD, less AD will result in disinflation or deflation
80
Name 2 advantages of the Eurozone
- Participating countries have more currency stability, this gives future markets more certainty, so there is
more investment
- fewer admin fees and less red tape when travelling abroad or exchanging money
- More trade between countries as there'd be less trade barriers
81
Name 2 disadvantages of the Eurozone
- Labour mobility will not be that good due to language barriers
- The one-off cost of joining a currency union of changing labels and prices can be significant
- Countries with a strong economy have to cooperate with countries that have weaker economies. They cannot adapt their policies to meet each individual requirement
82
Name 2 trade characteristics of China
- China’s main exports are manufactured goods
- Cheap labour
- China is now Japan's main trading partner
83
Name 2 inequality characteristics of China
- There is an economic disparity between urban and rural citizens
- By 2012, those in the city appeared to outnumber the rural population for the first time
- Earnings in the countryside have not risen as much as the incomes in the cities, due to increase in factory wages
84
Name 2 pollution characteristics of China
- China is the 2nd largest oil consumer
- World's biggest producer and consumer of coal
- The worlds biggest Greenhouse gas emitter
- pollution causes 500,000 to 750,000 premature deaths
85
Name 2 standard of living characteristics of China
- 200 million people still don't have access to safe water
- World Bank states that 500 million Chinese people still live on less than $2 a day
- China's tourists are now the world's third biggest spenders
86
Name and explain the 2 factors influencing expansion into a market
Ease of doing business
- Influenced by government policy, political and economic stability
Exchange rates
- i.e. if a firm is heavily reliant on imported materials and such and the £ depreciates then costs of production can increase
87
Name and explain 3 factors influencing the location of production sites
Cost of production
- Low costs of production, i.e. labour, makes opening production sites attractive
Government incentives
- Governments could incentivise production by providing subsidies to firms
Natural resources
- Countries with easy access to natural resources, such as oil
Likely return on investment
- Firms are more likely to be located in a site where their return on investment is high and predictable
88
What are 'Merit Goods'?
things such as education and healthcare, that are deemed as causing positive externalities for society
89
What are 'Demerit Goods'?
Things such as tobacco and gambling, that are deemed as causing negative externalities for society
90
What is 'Asymmetrical information'?
when one party has more or better information than the other party
91
What is 'imperfect information'?
Sellers or buyers not having all information
92
What are 'Public Goods'?
Goods provided by the government that anyone can access, and use of the good or service does not diminish its availability for others to use
93
What are 'Private Goods'?
Goods provided that's use is restricted for those who are willing and able to pay for them, and one person's consumption of the good or service reduces its availability for others.
94
What is 'Marginal Private Cost'?
s the cost to a firm of producing one extra unit
95
Name all 3 different methods to approaching global markets, and name an advantage and disadvantage for each
Domestic/Ethnocentric
- Ethnocentric business involves doing business both domestically and internationally. Goods and services are most likely to be traded with countries that have similar cultures
- Ethnocentric consumers see the domestic culture as an ideal, so they are less likely to purchase foreign made goods
- It can make it difficult for domestic firms to trade with
other countries, especially if the other country is ethnocentric
Mixed/Geocentric
- The management of the firm considers
global opportunities and the ways of conducting business across the world.
- The world is becoming closer, so firms are more likely to be
competitive wherever they end up.
- It is hard to find managers and employees who have knowledge and expertise in many different cultures,
International/Polycentric
- polycentric approach prioritizes local adaptation of the market it is selling in
- It is also cheaper to employ staff from the local country
- A possible disadvantage is that these staff could put the
interests of the host country above the firm
96
Explain the two demand side factors a firm will have to consider
Cultural differences
- having to be aware of the country’s culture and preferences when conducting business. For example, McDonald’s, have to adapt their menus to meet local
requirements
Language
- Firms have to ensure that they are advertising their goods correctly, clearly and without unintended meanings, translated phrases can be misunderstood
97
Name 2 impacts of MNCs on the local economy, but name the positive and negative of each impact
More jobs created; ethical issues and local businesses will can't compete
- Workers might be able to increase their skillset and take advantage of new training
opportunities in new industries; the
MNC might only offer basic, repetitive tasks, rather than more advanced work
- MNCs can bring a culture or CSR, promoting wellness for the environment; but also vise versa
98
Name 3 impacts of MNCs on the national economy
due to multiplier effect where FDI may lead to government investment leading to overall economic growth
- FDI may encourage other businesses to copy and set up business in that country
- By exporting production to other countries, the country can improve its balance of payments.
- Transfer of skills
99
2 ways of controlling MNCs
- Legal control such as labour rights and minimum wages
- Encourage self regulation life the OECD, this makes firms regulate themselves and adhere to good responsibility (good CSR = good reputation)
100
Name 3 things that influence the demand for labour
- Wage rate
- Demand for products
- Productivity of labour
- Substitute for labour
- Profitability of the firm
- Number of firms in the market
101
Name 3 things that influence the supply for labour
- Wage rates
- Demographics of population
- Migration
- Advantages of work
- Leisure time
- Trade unions
- Taxes and benefits
- Training
102
What is 'Individual Bargaining'?
A negotiation between a single employee and the employer
103
What is 'Collective bargaining'?
Collective bargaining is a negotiation between employers and a collective group of employees
104
What is 'Productivity Bargaining'?
When an employee agrees to increase productivity for the return of a higher wage rate
105
What is 'International Competitiveness'?
the ability of a nation to compete successfully overseas and sustain improvements in real output and living standards
106
What is 'Absolute Poverty'?
Living below basic needs, the world bank measure it as less than $1.25
107
What is 'Relative Poverty'?
Measured by comparison to the average in the country
108
What is the measure of 'poverty'?
Human Poverty Index which measures; life expectancy, education, ability to meet basic needs
109
Name the 2 ways of measuring inequality
The Lorenz Curve and the Gini Coefficient
110
Name 2 poverty reduction policies
- Promotion of FDI
- Microfinance schemes (promote borrowing
- Development of human capital
- Infrastructure development
111
What is the difference between income and wealth
Wealth is a collection of assets such as land, houses, cars
Income is money you receive on a regular basis
112
What is a 'Poverty Trap'?
A mechanism which means people are forced to stay poor and they cannot escape from poverty.
