Full Theme 4 Flashcards
Identify characteristics of Globalisation
- Greater trade of goods and services between nations - Higher levels of labour migration - Development of global brands that serve both high and low class consumers - Nations joining trading blocs
Factors contributing to globalisation in the last 50 years.
- Lower costs of transportation, containerisation and bulk buying. - Technological change, lead to faster transfer of information - Reduction in protectionism
What are the benefits of Globalisation?
- Trade enhances division of labour, therefore countries can specialise - Better relations with other countries encourages consumers and producers to feel the benefits of ECONOMIES OF SCALE - Competitive markets reduce monopolies forming - Helped poorer countries achieve economic growth
What are the drawbacks of Globalisation?
- Rising Inequality, growing rural urban divide - Rising Inflation, strong demand for commodities causes rising inflation, putting the poorest at risk. - Threats to the environment. - Greater unemployment in advanced countries - Loss of diversity
What is an Absolute advantage?
Absolute advantage is achieved when one producer is able to produce a competitive product using fewer resources, or the same resources in less time.
What is a Comparative Advantage?
refers to an economy’s ability to produce goods and services at a lower opportunity cost than that of trade partners.
Advantages of Specialisation (division) of labour.
- Higher productivity and efficiency – e.g. rising output per person hour. - Lower unit costs leading to higher profits. - Encourages investment in specific capital – economies of scale.
Disadvantages of Specialisation.
- Greater cost of training workers. - Quality may suffer if workers become bored by the lack of variety in their job. - More expensive workers, because they are highly skilled.
What are the factors influencing the patterns of trade between countries.
- Protectionism - Exchange rates, appreciated exchange rate domestically means domestic exports find it harder to compete in international markets - Inflation, countries with high inflation may find it harder to keep costs low
What are the advantages of having a comparative advantage?
gives a company the ability to sell goods and services at a lower price than its competitors
Impact of emerging economies on trading patterns.
Economies such as India and China produce high quality goods at low prices because they have large amounts of labour
Impact of the growth of trading blocs on trading patterns.
Will lead to greater foreign direct investment, which can create new jobs in other countries. Eliminate tariffs which drive down costs
Impact of Bilateral Trade agreements on Trade patterns.
Easier to negotiate than multilateral trade agreements, since it only involves two countries. This means it can be implemented faster, reaping benefits quicker
What are Bilateral Trade Agreements?
Negotiating favourable trading terms between two countries
How to calculate the terms of trade?
Exports DIVIDED by Imports Times the answer by 100
What are the factors influencing a countries terms of trade?
- Exchange Rates : fall in the exchange rate should reduce the terms of trade. This is because a decline in the exchange rate will make exports cheaper. - Competitiveness of firms : Export prices will be affected by the cost of raw materials and productivity.
What happens to export and import prices when there is an improvement in the terms of trade?
- Imports more cheaper - Exports are more expensive Improved living standards
What happens to export and import prices when there is an worsening of the terms of trade?
- Exports cheaper - Imports more expensive Fall in living standards
What are regional trade agreements?
Are treaties among two or more governments that offer favourable trade between themselves than they do from goods imported from outside the region
What are bilateral trade agreements?
Trading agreement between only two countries
Define Free Trade Area.
where there are no import tariffs or quotas on products from one country entering another. And set their own tariffs for imports from non-member countries.
Define Customs Unions.
Is where countries decide not to put tariffs on each other’s goods and agree to put in common external tariffs on goods from countries outside the union.
What is the main difference between Free Trade Areas and Customs Unions?
Setting common external tariffs with Customs Union
Define a Common Market.
The same as a Customs Union - Is where countries decide not to put tariffs on each other’s goods and agree to put in common external tariffs on goods from countries outside the union.
Define Monetary Unions.
Is an agreement between two or more countries creating a single currency area.
What is the Criteria to join the Eurozone?
- Inflation cannot be 1.5% higher than the 3 best performing economies - Government deficit cannot be 3% higher than GDP
What are the benefits of regional trade agreements?
- Quality and Variety of goods - Boost economic growth
What are the costs of Regional Trade Agreements?
- Inefficient producers in the bloc are protected - Retaliation, may lead to trade wars
Identify possible conflicts between regional trade agreements and the WTO?
The WTO wants global free trade whilst regional trade agreements put up protectionist measure to those who are not members of the bloc
Reasons for restrictions of free trade.
- To protect domestic jobs from cheap labour abroad - To improve a trade deficit, make imports more expensive so reduce the demand for them - Extra taxation revenue for the government
What is a tariff?
a tax or duty to be paid on an import
What is a quota?
A limit on the number of imports allowed into a country
What is a Subsidy to Domestic Producers?
Is a payments to producer by the government attempting to lower the price of product and increase the quantity available, overall increasing international competitiveness
Define Non Tariff Barriers.
is a way to restrict trade using trade barriers in a form other than a tariff. E.G - Import bans, tightening quality restrictions
What are the benefits of protectionism?
- Protect new industries from being pushed out the market by cheaper industries abroad, Eg, president trump put tariffs on steel imports to protect the US steel industry - Raise revenue for the government
What are the costs of protectionism?
- Protectionism leads to retaliation and therefore higher import prices and higher consumer prices - Higher prices could lead to lower overall demand and job losses - Protectionism can cause inefficient firms to stay in business.
Identify the measures of International Competitiveness.
- Relative unit labour costs - Relative export prices
What is International Competitiveness?
Measures the relative cost and value of a countries exports
What are the factors influencing international competitiveness?
- Relative Inflation Rates - Exchange Rates - Labour Productivity
Why does Relative Inflation Rates affect International Competitiveness?
- Inflation erodes international competitiveness : - During inflationary periods people have a lower purchasing power because their money is worth less. - So demand drops causing a follow on drop in supply
Evaluate the affect of inflation on International Competitiveness.
- Lower inflation may be offset by an appreciation in the currency - Therefore gains by lower inflation are offset by a stronger currency
Why does Exchange Rates affect International Competitiveness?
- A depreciated exchange rate causes domestic exports to be more internationally competitive. - E.G - From 2008 to 2009 the pound fell by 30%
Why does Labour Productivity affect International Competitiveness?
- Improved infrastructure makes it cheaper to transport goods - How skilled the workforce is
What are the benefits of Improving International Competitiveness?
- Exports are cheaper leading to higher demand for exports. Export-led growth has been a significant factor in Chinese economic growth. - Higher exports will help increase aggregate demand and economic growth - Improved competitiveness will help improve a country’s current account deficit. - Create jobs in the export sector - Help to reduce inflation in the economy.
Define Absolute Poverty.
is a condition where household income is below a necessary level to maintain basic living standards
Define Relative Poverty.
A condition where household income is a certain percentage below median incomes.
How to measure Absolute Poverty?
food, shelter, housing
How to measure Relative Poverty?
Measuring incomes based upon the average income
Does Economic Growth cause Absolute Poverty to change?
No
Does Economic Growth cause Relative Poverty to change?
Yes!
What is the different between Wealth and Income Inequality?
- Income inequality - The degree to which income is distributed unequally in an economy or population - Wealth Inequality - refers to the unequal distribution of assets in a group of people.
What is the Gini Coefficient?
Measure of income inequality that condenses the entire income distribution for a country into a single number between 0 and 1
Interpret the Gini Coefficient value.
the higher the number, the greater the degree of income inequality.
What is the Gini Coefficient value for the UK?
0.34
What is the Lorenz curve?
is a way of showing the distribution of income (or wealth) within an economy.
Show the Lorenz Curve?
The line of inequality is 45 degrees.
The lines mean that the poorest 20% hold 5 % of the whole income in the economy.
What are some of the causes of Wealth and Income Inequality within and between countries?
Education
Skills and Training
Unemployment
Type of Job
Inheritance
How might economic growth affect inequality?
- High increases in pay of people in top-paying jobs
- Increasing wealth including rising property prices
- Growing gaps between urban and rural areas
Define Capitalism.
is a society with minimal government intervention and resources are distributed according to the outcome of free markets.
What is the link between Capitalism and Inequality?
- Profit Motive : if individuals can see the rewards of taking risks then inequality occurs
- Work Incentive : difference in wages means that workers are incentivised to learn new skills, and move up into higher paying jobs. Or successful workers are payed more generously based on their performance
- Monopoly Power : a firm may charge consumers unfair prices,
- Monopsony Power : these firms can get away with paying workers very low wages
What are the three different dimensions of the Human Development Index (HDI)?
Education
Health
Living Standards
What is a Low HDI score?
From 0 to 0.5
What is a medium HDI score?
0.5 to 0.8
What is a High HDI score?
0.8 to 1
How are the three dimensions used to calculate the HDI?
Value is created based upon the progress of the countries improving these three dimensions
What is the HDI of the UK?
0.909
What is the HDI of Norway?
0.949
Norway has the best HDI in all the world
Explain the Advantages of using HDI to compare levels of development between countries.
- Doesn’t rank countries based on their income alone
- HDI values are accepted worldwide so easy comparisons can be made
Disadvantages of using the HDI index.
- Doesn’t take into account reign regional disparities, for example, North South divide in the UK
- Reflects long term changes and not short term ones
- Can depend on other factors like threat of war, and access to mobile phones
What are some other indicators of development?
- GDP
- Birth and Death rates
- Infant mortality rate
- Literacy rates
Give an example of a country that has huge Primary Product Dependancy?
Angola, 97% oil it exports
What is Primary Product Dependancy?
Is when countries rely on specialising in and exporting low value products.
What are the drawbacks of Primary Product Dependancy?
Prices of these goods can be volatile, when prices fall and economy will see a sharp drop in export income and worsens Balance of Payments, which could lead to finance problems for governments.
What is the Harrod-Domar model?
It is an economic growth model that stresses the importance of savings and investment as key determinants of growth
Show the Harrod-Domar model.
What is a Foreign Currency Gap?
- Happens when currency outflows persistently exceed currency inflows.
- A country is running a persistent current account deficit on their balance of payments.
What are the consequences of a Foreign Currency Gap?
Country doesn’t have enough foreign currency to pay for essential imports, which can severely effect short run economic growth
What is Capital Flight?
Is when assets or money rapidly flow out of a country, due to a serious economic event.
What are the consequences of Capital Flight on an Economy?
- Reduces economic growth and the power of the economy
- Reduces the power of the government due to reductions in tax revenues
- Multiplier effect as other people begin to take their money out.
What impact can demographic changes have on the economy?
- Change productivity, causing slower growth rates
- Consumption and Investment can be impacted
- Influence long run unemployment rates
What impact can a high national debt have on the economy?
- Reduced government spending, slowing the rate of economic growth
- Crowding Out, means that people will put their money into government bonds and instead won’t spend or invest.
- Less Fiscal Flexibility
What impact does credit availability have on the economy?
- Causes greater spending within the economy
- Leads to economic growth
How does Infrastructure impact the economy?
Fuels economic growth by…
- Reducing costs of production
- Making it easier to transport goods and services and for people to get to work
- Creating indirect positive Externalities
How does education impact the economy?
Directly affects the economy, because better worker education improves their human capital, improving productivity and output of the economy.
How does the Absence of Property rights affect the economy?
- Banks need a system with clear legal property rights in order to give out mortgages.
- If it is difficult to prove ownership of assets this assets might not work