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Economics A2 Level > Global Topic Unit 1-International trade > Flashcards

Global Topic Unit 1-International trade Flashcards

1
Q

Define free trade

A

An absence of tariffs, quotas and regulations designed to reduce barriers to trade among nations.

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2
Q

Features of free trade

A
  • Encourage imports
  • Low is no tariffs and barriers
  • Companies can relocate abroad
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3
Q

Examples of free trade areas

A
  • EU

- NAFTA- North American Free Trade Agreement

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4
Q

Benefits of free trade

A
  • Cheaper prices
  • Competition
  • Better quality
  • More supply (quantity)
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5
Q

Drawbacks of free trade

A
  • Loss of domestic demand

- Increased unemployment

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6
Q

Define protectionism

A

The introduction of barriers to reduce foreign trade

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7
Q

Features of protectionism

A

High tariff rates to protect local businesses (domestic industries)

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8
Q

Reasons for implementing protectionist measures

A
  • Increased domestic unemployment

- Excess domestic supply- companies struggling

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9
Q

Define tariffs

A

A tax imposed on goods and services to raise its prices and reduce demand

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10
Q

Non-tariff barriers:

  • Define quotas
  • Define embargo’s
  • Define regulations
A
  • A physical limit on the number of goods imported into a country
  • A complete ban on a products imports e.g. UK are banning Syrian goods such as oil
  • Rules and limits which limit/monitor imports
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11
Q

What does the tariff diagram look like ?

A

Look at notes

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12
Q

Advantages of free trade

A
  • More choice at lower prices- H
  • Increased competition forces to innovate (change)- E, F
  • Export of goods/ services increase growth- G, H, E
  • Encourages efficiency- F
  • Increases world output and wealth- E, G
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13
Q

Advantages of protectionism

A
  • Protect jobs
  • Prevent negative externalities (demerit goods)
  • Political policies to protect industries
  • Prevent dumping
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14
Q

What does the quota diagram look like?

A

Look at notes

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15
Q

Reasons for quotas

A
  • Help domestic firms to compete in the market

- Helps regulate the volume of trade between then and other countries

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16
Q

How can non-trade barriers can be used to restrict free trade ?

A
  • Domestic subsidies that act as an aid for domestic businesses facing financial problems
  • Financial protectionism- e.g. government instructs banks do give priority when making loans to domestic businesses
  • Intellectual property laws
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17
Q

Disadvantages of protectionism

A
  • Less competition
  • Higher prices and lower quality
  • Less choice and variety for consumers
  • Encourages inefficiency in Domestic firms
  • Retaliation
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18
Q

Production possibility curve

A

Shows various combinations of the amounts of two goods which can be produced within the given resources and technology. There is an opportunity cost.

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19
Q

PPF concave to origin

A

Not all goods are as productive at producing one good in comparison to another. There is not an equal opportunity cost and there is a lack of perfect factor substitutability

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20
Q

Perfect factor substitutability

A

There is an inverse relationship between two goods and there is an equal opportunity cost

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21
Q

Disadvantages of free trade

A
  • Imports> exports= trade deficit- E
  • Negative multiplier effect- E
  • Less variety of domestic jobs available- higher unemployment- less disposable income- H
  • Less convenience l- time to receive good- H, F
  • Language barriers between countries- F
  • Lower amount of tax revenue on corporation tax- G
  • Monopolies dominate- threat to small businesses- F
  • Less income revenue- G
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22
Q

Absolute advantage

A

A country has an absolute advantage when they can produce a greater volume of a good/ more efficient production than another country using the same resources. They will be the specialist country in producing that good and will trade to other countries- use fewer resources

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23
Q

Opportunity cost

A

The foregone alternative, the sacrifice of alternative products made

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24
Q

Comparative advantage

A

A country can produce at a lower opportunity cost than another country. They forego less of other goods in order to produce it.

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25
Q

Formula for terms of trade

A

Index of exports/ index of imports x100

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26
Q

Less than 100 means

A

Country is spending more capital on imported goods than bringing in

27
Q

More than 100 means

A

The country exports a higher value of goods

28
Q

Factors that affect terms of trade ?

A
  • Exchange rate

- Prices of commodity (raw materials) e.g. oil

29
Q

Define terms of trade

A

A country’s terms of trade (ToT) measures a county’s export prices in relation to its import prices. It is a measure of a countries relative competitiveness. If a country can buy more imports with a given quantity of exports, its terms of terms of trade have improved.

30
Q

Terms of trade result:
Improvement-
Worsening-

A

Improvement- an improvement in a country’s TOT indicates that export prices have increased compared to import prices which have either maintained or dropped. This means a unit of export buys relatively more imports. Generally, this leads to an improvement in living standards as imported goods appear cheaper to consumers. ToT= >100

Worsening- When impact prices rise faster than exports more capital is leaving the country than is entering into the country so there is a worsening TOT. Generally, a worsening ToT leads to a decline in living standards as imported consumer goods are more expensive. ToT= <100

31
Q

What is terms of trade influenced by:

A
  • The Exchange rate

- The rage of inflation

32
Q

How will interest rates affect the value of imports and exports?

A

Increase in interest rate- Increases the value of the pound- strong pound, imports cheaper, exports dearer

33
Q

How does the Exchange rate affect TOT improving/ worsening?

A
  • SPICED= value of imports ⬇️ exports ⬆️- value of imports lower (cheaper) than exports, exports greater in value so increase in ToT.
  • WIDEC= value of imports ⬆️ exports ⬇️- more expensive imports compared to exports, worsens TOT as value of imports> exports
34
Q

UK’s top 4 export countries:

A
  1. US- £31.7bn
  2. Germany- £27.5bn
  3. France- £18.9bn
  4. Netherlands- £18.8bn
35
Q

Sectors of industry:
Primary-
Secondary-
Tertiary-

A

Primary- Agriculture
Secondary- Manufacturing
Tertiary- Public sector (most demand for exports in the UK)

36
Q

Define world trade Organisation

A

An intergovernmental organisation that is concerned with the regulation of international trade between nations. Helps promote free trade by persuading countries to lower their import tariffs and barriers

37
Q

When was the world trade organisation founded?

A

January 1st 1995

38
Q

What is the main goal for the world trade organisation ?

A

Create a level playing field to allow trade between countries to be smooth- regulate trading

39
Q

Criticism of WTO

A
  • Might be abused by businesses
  • Undemocratic- following rules that we didn’t vote for
  • Patent Act
40
Q

Who was the most recent country to join and what did they have to change ?

A

Russia is the most recent country to join the WTO. Countries that join the WTO have to introduce a large number of economic and legal changes and agree to abide by established global trade rules.

41
Q

WTO aims to achieve:

A
  • It provides a forum for settling trade disputes between governments
  • It has the power to levy fines when breaches of global trade agreements have occurred.
  • It seeks to make trade between countries.
42
Q

Challenges the WTO have faced?

A
  1. Rising unemployment and persistently slow growth in the developed world
  2. Shifting global economic power
  3. Agriculture- in the US and EU, many agricultural markets are protected for political reasons
43
Q

Define trade blocks

A

Groups of countries which have trade agreements amongst themselves and a common external tariff e.g. EU, NAFTA

44
Q

Define bilateral trade agreements

A

Trade agreements between one country and another. These are not encouraged by the WTO because it may involve high tariffs.

45
Q

What does GATT stand for?

A

General agreement on tariffs and trade

46
Q

Purpose of GATT

A

To dismantle the barriers to trade that had been created between the two world wars.

47
Q

How does free trade benefit developing countries?

A

Developing countries need some trade protection to be able to develop new industries

48
Q

How is free trade detrimental to the environment?

A

Often ignored environmental considerations

49
Q

Benefits of WTO has lead to:

A
  • Lower prices
  • Greater competitiveness
  • Increased growth
  • Better quality
50
Q

Define globalisation

A

It is a process of deeper economic integration between countries and regions of the world. Globalisation involves interdependence of National economies.

51
Q

How is globalisation different to international trade?

A

International trade is the exchange of products between countries. Whereas globalisation is a process of deeper economic integration between countries and regions of the world

52
Q

What are the 7 characteristics of globalisation?

A
  1. Greater trade
  2. An increase in transfers of capital
  3. The development of global brands
  4. Spatial division of labour
  5. High levels of labour migration
  6. A fast changing shift in the balance of economic and financial power
  7. Increasing spending on investment, innovation and infrastructure
53
Q

Explain the concept of FDI?

A

Foreign direct investment is an investment made by a firm or individual in one country into business interests located in another country.
An example of a country doing FDI is Japan where a Japanese fashion brand opens a retail location in London.

54
Q

What is an MNC and how does a business become one?

A

A multinational corporation is a business that has operations in more than one country. They key to being an MNC is that the business has business operation in two or more countries.

55
Q

What is a TNC?

A

Transnational corporations are large businesses that operate in a number of countries.

56
Q

What is the difference between an open and closed economy?

A

An open economy is an economy in which there are economic activities between the domestic community and outside. Whereas a closed economy is self-sufficient meaning that no impetus are brought into the country, and no exports are sent out of the country. E.g. North Korea.

57
Q

What are some of the main drivers of globalisation?

A
  1. Containerisation: the costs of ocean shipping have come down, due to bulk shopping etc.
  2. Technological change
  3. Economies of scale: increase on the minimum efficient scale
  4. Differences in tax systems: the desire of corporations to benefit from lower unit labour costs
  5. Less protectionism: import licensing for example has gradually been dismantled
58
Q

Benefits of globalisation ?

A
  1. Increased trade
  2. Increased economies of scale- lowering prices
  3. Increased competition pushing down prices
  4. Increased choice of goods, services and opportunities for work
  5. Bigger export market for domestic manufactures
  6. Greater competition
  7. Free movement of labour
  8. Increased investment
59
Q

Costs of globalisation

A
  1. Growth of global monopolies with opportunity to exploit consumers
  2. Environmental costs from increased use of raw materials
  3. Free trade can harm developing economies
  4. Labour drain
  5. Tax avoidance
  6. Inequality of income in les developing countries- children stuck in job rather than going to school
  7. Inflation- rise in commodity goods
60
Q

What is the main goal for the World Trade Organisation?

A

To create a level playing field to allow trade between countries smoothly- regulate trading

61
Q

Explain some criticisms of the WTO?

A
  • Might be abused by businesses
  • Undemocratic- following rules that we didn’t vote for
  • Patient Act
62
Q

What is the WTO and what does it help to promote?

A

The WTO is a multi-lateral organisation based in Geneva and Switzerland and it helps to promote free trade by persuading countries to lower their import tariffs and other barriers to open markets including import licenses.

63
Q

What are trade blocks?

A

Groups of countries which have trade agreements amongst themselves and a common external tariff e.g. EU, NAFTA

64
Q

List 4 benefits of what WTO and increased free trade has led to?

A
  1. Lower prices
  2. Greater competitiveness
  3. Increased growth
  4. Better quality

Economics A2 Level (11 decks)

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