Economics - Unit 3 Flashcards
What is a negative externality?
The external cost of an economic transaction on a party who is not directly involved
What is specialisation?
Being better than another country at providing a good or service in terms of the quantity of output and lower costs
Give example of a negative externality
Pollution - health disadvantages more money on NHS or global warming
Congestion - takes longer to get to work therefore decreases productivity and output
Loss of habitat - animals made extinct
Why does the UK have a current account deficit?
Loss of advantage in many industries
- manufacturing in uk replaced by exports
Globalisation
- cheaper to produce goods where the labour costs are low
Growth in peoples real income
- demand rises more quickly than supply so there is a shortage of goods the gap is filled with imports
Exchange rate
- stronger pound mean can buy more abroad also means exports are more expensive
Lower levels of productivity
- can produce that many exports
Relatively weak product innovation
- low rate if spending on R+D
What is absolute poverty?
Having less than $1.25 a day to live on
What is foreign aid?
Giving money or resources from one country to another in order to help that country
What is absolute advantage?
When a country is able to provide a good or service using fewer resources and at a lower cost than another country
What is protectionism?
Where an action is taken that reduces international trade
What is a tariff?
A tax placed on imports to increase price and decrease quantity demanded
Why do countries want to protect industries?
IDPPP
Infant industries - new industry that if developed could be an economic advantage
Dumping - to prevent countries from selling below the cost of production in a market to gain market share and then raising their prices to make huge profits
Prevent unemployment - stoping foreign goods being sold on a market is the only way to prevent unemployment
Preventing negative externalities - stops stuff like drugs being put in the UK market
Political - imposing methods to protect vital industries
How might a company protect their industries?
Tariff- putting a tax on the good to make it more expensive
Quota - putting a physical limit on the number of goods allowed to be imported
Embargo - banning goods
Rules and regulations - imposing strict laws to make it difficult for the product to get into the UK
Often ends in retaliation
What are the benefits of globalisation to the UK?
- produce goods at low costs in other countries
- low inflation due to greater competition
- sustained economic growth
- high foreign investment
- foreign companies set up in the UK bringing employment with them and new ideas
- more skilled workers
- wide range of products
What are the costs of globalisation to the UK?
- firms may go abroad to low cost countries
- loss of jobs and industry
- current account of balance has shown a large deficit
- environmental problems
- harder for smaller businesses to enter market
What is the current account?
The balance of trade in goods and services plus net investment incomes from overseas assets
What is a balance of trade in goods?
The export of goods from the primary and secondary sector minus the import of these goods
What is a balance of trade in services?
The export of territory sector services minus the import of these services
What is global interdependence?
Countries cannot exist alone but rely on each other
What limits countries from benefiting from globalisation?
- poor health care, this means poor productivity and this will stop investors from investing
- poor infrastructure, increase cost of production as its hard to get goods places with no ports or airports, therefore decreasing global competitiveness
- lack of education, decrease in human captain means less productivity therefore less FDI is attracted and the output of a country will decrease and there economy shrink
- corruption, if countries are to corrupt than the money does not go to the industries or population so there is less investment
- availability of resources, if there is a lack of resources than the country wont be able to gain specialisation or absolute advantage, which will stop them competing in the global market therefore they will have to import
materials, this will increase the cost of production - debt, money is spent on repaying debt rather than infrastructure and education which will increase the productivity and make the economy grow, this is opportunity cost
- rapid population growth, as the population increases there is a increase in the strain of resources like housing and health care, this will decrease GDP per capita
- high inflation, can lead to hyperinflation. The exchange rate will be more changeable as therefore there is more uncertainty so firms wont invest
- war and civil war, decrease the workforce therefore decrease productivity, government spending focuses on war and not other things, hard to export and import, child soldiers lose there education
What is globalisation?
An expansion of world trade in goods and services leading to greater international interdependence
When did globalisation start?
- stage 1 1870s - increased international trade and new technology helped improve transport and reduce costs of moving between countries this ended in1920s as countries started to protect industry against foreign competition and restricted imports
- stage 2 After 1945 - countries were keen to build up economies again, rapid expansion in world trade and international monetary fund and world bank were funded to promote trade and economic cooperation between nation
- stage 3 now - huge increases in world trade and capital flows between countries, growth of huge companies who mass produce and gain economies of scale
What factors have contributed to globalisation?
- improvements in transportation
decrease in cost of transportation due to new tech and competition - improvement in information and communication
Internet made communication info cheap and quick you can promote products via the internet - rising in real living standards
Richer countries demand more goods and a wide range in choice this increase in consumer demand stimulated world trade - decline in protection
Countries encourage trade so fewer barriers - economies of scale
Tech improvements mean that companies can mass produce to large markets this takes advantage of cheaper production costs include new labour
What is a multinational company?
A company that has operations all over the world
How do multinationals become successful?
Increase quality and low costs
They take advantage at what different countries are best at so they save money
What are the advantages of multinationals?
- gain a strong foothold in international markets
Need to gain economies of scale
-cheap labour costs
Wages are a large part of production costs - ability to take advantage of different strengths of many countries
Cheap labour and availability of raw materials - transport/ distribution costs
Production plants all over the world so they don’t have to pay for shipping - favourable tax environment
Some countries charge lower taxes - availability of government grants
Gov could offer grants to set up in a particular area usually high unemployment
What are the disadvantages of multinationals?
-loss of jobs
Multinationals may decide to relocate and this could lose jobs
- export of technology
Jobs lost as tech moves with multinationals
- dependency on imports
Wider range of choices lead to vulnerable to closers
- loss of tax revenues
Much of the profit will go back to the base of the company not the country its in
What is international trade?
The exchange of goods and services across the international boundaries
