International Economics Flashcards
Reasons for Tariffs
Prevents Dumping (When a country sells surplus goods to another country at a lower price, impacting their domestic producers)
Job Protection - Protects firms who are losing out to more advanced international firms.
Tax Revenue for Government
What are Terms of Trade?
A measure of a country’s import prices compared to its export prices
(Index of Import Prices/Index of Export Prices) * 100
What are factors influencing Terms of Trade?
A change in exchange rate - increase in exchange rate will lead to higher TOT
A rise in productivity will lead to a fall in TOT as export prices will decrease in long run
Rising incomes lead to higher demand for exports and higher TOT
What are the effects of Terms of Trade?
Low terms of trade can lead to a lower quality of life as it means import prices rise higher than export prices, meaning fewer imports can be bought which means lower consumer choice
Low terms of trade can lead to economic growth as cheap export prices leads to higher export demand. Leading to BOP increase
Advantages of Trading Blocs
Leads to lower prices as it encourages countries to specialise and make use of their comparative advantages as they can trade more freely for the other goods. Lower prices for consumers and lower costs for firms
Allows greater competition for domestic firms which can lead to higher innovation in order to succeed - leading to bette rproducts
Disadvantages of Trading Blocs
Leads to more distorted world trade as countries will only trade within their trading bloc as its cheaper, reducing specialisation
Will cause inequality between developed and developing countries, as richer countries can afford to capitalise on cheaper trade more easily (setting up factories/capital etc)
What are the pros of Globalisation?
Countries can relocate to other countries with cheap labour, meaning costs are lower - leads to lower prices for consumers and higher profits
Higher employment in developing countries, means more tax revenue and more people earning a living
Higher Choice for Consumers
What are the cons of Globalisation?
Increased Inequaity as there is higher demand for high skilled workers, leading to higher salaries for them - whilst an increase in sweatshops leads to more people earning less
Comparative Advantage isn’t permanent and firms may move around a lot - causing structural unemployment
Environmental Issues
How can governments influence an exchange rate?
They can buy their own currency to increase the supply and therefore lower the price of it, or sell it and do vice versa
They can increase interest rates, which increases demand for the pound as firms will swap to pounds to invest in British banks - leads to appreciation and vice versa
What is a fixed exchange rate?
When an exchange rate is controlled by the government
What is a floating exchange rate?
When an exchange rate is controlled by the forces of supply and demand
What is Vertical Integration?
When two firms who are in the same industry but at different points in production combine
What are the advantages of vertical integration?
Ensures supply is more reliable as they are controlling it instead of someone else
Can’t be overcharged by suppliers - lowers costs which leads to lower prices and higher competitivenes
What is Horizontal Integration?
When firms in the same industry and at the same level of production combine
What are the advantages of Horizontal Integration?
Reduces competition and increases market share which can lead to high pricing power and more profit
EOS can be exploited to a higher degree - firms can afford to specialise more etc
