Globalisation

Question 1

why has the speed of globalisation increased

Answer 1

technological change (internet allows consumers to compare prices
transportation revolution
growth of Eastern European economies
trade becoming more liberated

Question 2

what are the effects of globalisation

Answer 2

foreign competition entered markets
unemployment and deindustrialisation as MNCs move
greater economies of scale
mergers

Question 3

example of foreign competition entering markets

Answer 3

BT operates in Europe and Asia

Question 4

what does the impact of multinational corporations depend on

Answer 4

their willingness to accommodate to the needs of the local economy
ability of host government to regulate
multinationals may expect incentives (special tax rates, subsidies)

Question 5

who is the UK’s biggest trading partner

Answer 5

Germany, machinery and manufactured goods

Question 6

what are the effects of globalisation on developed countries

Answer 6

reduced price of manufactured goods (standard of living)
cleaner environments (movement of manufacturing)
unemployment as jobs outsourced

Question 7

effects of globalisation on developing countries

Answer 7

integration in world economy (successful domestic firms)
reduced unemployment and poverty
agricultural sectors of developing countries face tariffs

Question 8

what are the benefits of free international trade

Answer 8

specialisation leads to resources being used more efficiently
firms have access to larger markets (MES and can produce on larger scale)
allows UK to achieve full employment

Question 9

absolute advantage d

Answer 9

where a country using a given resource input is able to produce more than other countries with the same input

Question 10

comparative advantage d

Answer 10

where a country can produce a good with a lower input cost than other countries

Question 11

what does the theory of comparative advantage indicate

Answer 11

global resources can be used more efficiently when countries specialise in producing the goods in which they have a comparative advantage

Question 12

what does comparative advantage basically mean

Answer 12

the opportunity cost of producing the good is less in a country than elsewhere

Question 13

evaluation of comparative advantage

Answer 13

assumes perfect competition
assumes constant costs
ignores currency fluctuations
time period ignored
travel costs

Question 14

terms of trade (TOT) equation

Answer 14

(index of export prices) / (index of import prices) X 100

Question 15

what does an improvement in the UK’s TOT mean

Answer 15

more imports are received for a given number of exports

Question 16

what is the effect on the BOP of an improvement in the UK’s TOT

Answer 16

provided demand is elastic, foreign demand for UK exports will fall, more spent on imports as their price has fallen, increase the deficit

Question 17

what is the effect on the BOP of a worsening of the TOT

Answer 17

BOP should improve because export prices lower and import prices higher

Question 18

Marshall-Lerner condition

Answer 18

devaluation of a currency will lead to an overall improvement in the current account as long as the combined price elasticities of demand of exports and imports exceed one

Question 19

protectionism d

Answer 19

the theory or practice of shielding a country’s domestic industries from foreign competition

Question 20

arguments for protection

Answer 20

infant industry argument (industry is of importance)
maintain domestic employment
prevent dumping (subsidised firms selling goods below the non-subsidised price, unfair)
avoid 'unfair' competition (low wages, safety)

Question 21

arguments against protection

Answer 21

welfare loss due to economic inefficiency
retaliation
props up monopoly producers
redistributes income in favour of the protected

Question 22

what are the techniques of protection

Answer 22

tariffs
subsidies
embargoes
quotas
administrative restrictions

Question 23

example of an embargo

Answer 23

US and Cuba (not any more ! mum’s note)

Question 24

what is the primary aim of the WTO

Answer 24

reduce levels of protection between trading countries

Question 25

what is the Doha round

Answer 25

a new round of trade talks which aims to help developing countries expand their trade