Global Economy 1 Flashcards
What is absolute advantage?
The ability to produce more of a good of service than a competitor
What is competitive advantage?
The ability to produce a good or service for a lower opportunity cost than a competitor
What does PPF stand for and what does it mean
Production possibility frontier and it shows the maximum potential output of an economy when all resources are being used
What happens to a firms output when they specialise?
Output increases
What is the theory of comparative advantage
If countries specialise in the production of goods in which they have comparative advantages, global output will increase
What are the assumptions of the theory of comparative advantage?
Average cost of production is constant
No trade barriers
No transport costs
What are the three types of diseconomies of scale?
Alienation - As companies get bigger, workers feel alienated and productivity falls
Bureaucracy - When company’s grow they to introduce things such as red tape, admin, and processes, which increases average cost
Communication - as companies grow, communities break down, increasing costs
What happens when there are diseconomies of scale
When output increases, long run average costs increase
What are the three limitations of the theory of comparative consumption?
Specialisation may increase average cost of production
Trade barriers may distort comparative advantage
Transport costs may distort comparative advantage
What is a trade barrier?
A restriction places by the government on foreign imports. For example, tariffs.
What is globalisation?
Increased integration of different economies around the world
5 characteristics of globalisation
Increased international movement of labour
Increased international movement of financial capital
Increased specialisation
Increased international trade
Increased trade-to-GDP ratios
What is one of the main ways financial capital moves across countries?
Through Foreign Direct Investment which is an investment made by a firm into another country to gain control over the foreign firm
What is a TNC?
Transnational corporations. A corporation that operates in 2 or more countries.
What does it mean if a countries trade-to-gdp ratio is high?
A country relies more on international trade
