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Macroeconomics > Globalisation, International Trade And Protectionism > Flashcards

Globalisation, International Trade And Protectionism Flashcards

1
Q

Terms of Trade

A

Measures the price index of exports divided by the price index of imports. It is expressed as a % so in the base year it will be 100

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2
Q

Equation for Terms or Trade

A

(X/M)x100

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3
Q

What does improving terms of trade mean?

A

Means that for every unit of exports sold it can buy more units of imported goods (SPICED)
Beneficial effect on domestic cost-push inflation
However, improving terms of trade may mean that countries may suffer in terms of falling export volumes

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4
Q

What does worsening terms of trade mean?

A

That for every unit of exports sold it can buy fewer units of imported goods
Damaging effect on domestic cost-push inflation
However, worsening terms of trade may mean that countries may gain in terms of rising exports volumes (your imports are cheaper) and improvement in balance of payments

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5
Q

What impact may an improvement on Terms of Trade have on the country?

A

Improve standard of living in a country

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6
Q

What impact may a worsening Terms of Trade have on the country?

A

May reduce living standards

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7
Q

What is International competitiveness?

A

Measures the relative cost and value of a countries exports

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8
Q

What factors determine international competitiveness?

A
  • Short-run factors (low inflation and weaker exchange rate)
  • Long-run factors (better education, healthcare, levels of corruption and macroeconomic environment that determine the productivity and quality of goods
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9
Q

What does the Marshall Lerner Condition state?

A

That a currency devaluation will only lead to an improvement in the balance of payments if the sum of demand elasticity for imports and exports is greater than one

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10
Q

If the QD for your exports and imports does not respond to the change in the exchange rate then…

A

…the current account of the BofP will not improve

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11
Q

If your exchange rate is too weak (WPIDEC)

A

This doesn’t necessarily mean this will improve BofP - worse off

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12
Q

What does the J-curve suggest?

A

That a trade deficit can actually worsen after currency depreciation, but get better in the long-term

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13
Q

The J-Curve effect what is the elasticity in the short-term?

A

Demand is often inelastic

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14
Q

The J-curve effect what is the elasticity in the long-term?

A

Demand becomes more elastic so the trade deficit improves overtime

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15
Q

What’s does the Laffer curve show?

A

Relationship between the tax rate and the tax revenue

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16
Q

The structure of the economy?

A

The balance between the primary, secondary and tertiary sectors within the economy

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17
Q

What are developing countries more reliant on?

A

E.g. Mozambique

Reliant on primary industries such as farming and mining than other economies

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18
Q

What are emerging economies more reliant on?

A

E.g. India

Feature a higher % of firms engaged in manufacturing (Secondary) industries than other economies

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19
Q

What are developed economies mainly rely upon?

A

E.g. UK

Dominated by their tertiary sectors and specialise more for more in service than a developing or emerging economy

20
Q

Sustainable development

A

Is about people, better lives now and a healthy planet for future generations.
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs

21
Q

What is protectionism?

A

Occurs when countires opt to impose restrictions on imports of goods and services from abroad

22
Q

What does protectionism aim to protect?

A

“Protect” domestic firms from foreign competition

23
Q

What are tariffs?

A

A tax or duty that raises the price of imported products. This causes a contraction in domestic demand and an expansion in domestic supply

24
Q

What are Quotas?

A

These are quantitative (volume) limits on the level of importa allowed into a country. E.g. maximum of 1m cars

25
Q

What are intellectual property laws?

A

Copyright protection for example

26
Q

What are technical barries?

A

To trade including product labelling rules. These increase product compliance costs and impose maintaing costs on export agencies

27
Q

What are subsidies?

A

Payments by a government giving domestic producers a hand-up over the foreign competition

28
Q

When does economic integration take place?

A

When countries agree amongst themselves to abolish some (or all) protectionist measures on trade between them

29
Q

What are the 5 levels of economic integration?

A
  • Free Trade Area
  • Customs Union
  • Single Market
  • Monetary Union
  • Economic Union
30
Q

Features of a Free Trade Area?

A

-Countries agree to eliminate tariffs and quotas on trade in goods between themselves e.g. NAFTA

31
Q

Features of a Customs Union?

A
  • Free trade area with an extra layer

- All members impose a common external tariff on non-member countries e.g. EU before 1992

32
Q

Features of a Single Market?

A
  • More integrated than a customs union

- All members allow free movement of goods, services, labour and capital between eachother e.g. EU from 1992 onwards

33
Q

Features of a Monetary Union?

A

-When members of a union agree to operate single currency in their respective economies e.g. Eurozone

34
Q

Features of an Economic Union?

A

-All members agree to pursue a singke monetary policy and could agree upon single fiscal and supply-side policies too e.g. effectively would be a United States of Europe

35
Q

Why is protectionism GOOD?

A
  • ‘Infant industries’, argument states that developing countries are justified to put tariffs on imports if they are seeking to develop new industries
  • Reduce negative externalities:Protectionism can be used to internalise the social costs of de-merit goods
  • Protect jobs and improve balance of payments X>M
36
Q

Why is protectionism BAD?

A
  • Distorts the market: higher prices for consumers as tariffs push up prices e.g. allocatively inefficiency
  • Trade Wars: a country imposing import controls mag lead to “retaliatory action” by another
37
Q

What does protectionism all depend on?

A
  • Short term V Long term
  • Elasticity of demand for imports
  • Moral arguments
38
Q

What would the impact be if a tariff was imposed?

A
  • Producer surplus would increase
  • Consumer surplus would decrease
  • Tariff revenue raised by the government
  • Welfare lost G and H
  • Imports would fall from Q1-Q4 to Q2-Q3
  • Q2-Q3 government revenue
39
Q

When will Trade Creation occur?

A

When there is a reduction in tariff barriers from joining Free Trade Agreement, leading to lower prices. Switch to lower cost producers and will lead to an increase in consumer surplus and economic welfare

40
Q

When would trade diversion occur?

A
  • Results from trade being diverted from a more efficient exporter towards less efficient one by the formation of a free trade agreement of a customs union. Loss of economic welfare
  • Not a good thing when it comes to the allocation of world resources
41
Q

What are the benefits of free trade?

A
  • Theory of Comparative advantage
  • Reducing tariff barriers
  • Increased exports
  • Economies of Scale
  • Increased consumption
  • Trade is an engine of growth
  • Make use of surplus raw materials
  • Tariffs may encourage inefficiencies
42
Q

What are the effects of import quotas?

A

A limit on the amount of imports that can be bought into a particular country e.g. US may limit the number of Japanese cars, quotas will reduce imports and help domestic suppliers. They will lead to higher prices for consumers, a decline in economic welfare and lead to retaliation of tariffs imposed on exports

43
Q

Types of quotas

A
  • Absolute quota - simple physical limit on the number

- Tariff rate quota - these allow a certain number of imports ro gain a discount on the usual tariff rate

44
Q

If a quota was imposed what will the diagram look like?

A

Shift Domestic Supply right

45
Q

Impact of Imposing a quota?

A
  • Lead to a fall in imports to just Q3-Q2
  • Domestic suppliers gain more revenue
  • Consumers pay a higher price as quantity falls from Q4 to Q3

Macroeconomics (15 decks)

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