International Economics

Question 1

What’s globalisation?

Answer 1

The integration of the world’s local, regional and national economies into a single international market.

Question 2

What factors contribute to globalisation?

Answer 2

Improvements in transport infrastructure and operations. Improvements in IT and communication.
Trade liberalisation.
International financial markets.
Multinational Corporations.

Question 3

What are the impacts of globalisation on consumers?

Answer 3

More choice.
Lower prices if companies take advantage of comparative advantage.
Higher prices if incomes rise lead to an increase in demand.
Potential loss of culture.

Question 4

What are the impacts of globalisation on workers?

Answer 4

Employment and wages can increase/decrease based on the comparative advantage of different countries.
Increased migration.
Increasing inequality.
Potential for poor working conditions.

Question 5

What are the impacts of globalisation for producers?

Answer 5

Can source products from more countries which reduces risk.
Lower costs.
Potential for greater revenue.
Uncompetitive firms may lose out.

Question 6

What are the impacts of globalisation for governments?

Answer 6

Can receive higher tax revenue from large MNCs and their employees.
Can receive less tax revenue.
MNCs have the power to bride and lobby governments.

Question 7

What are the pros of globalisation?

Answer 7

Improved allocation of resources.
Free trade.
Inward investment.
Specialisation.

Question 8

What are the pros of MNCs in globalisation?

Answer 8

Capital inflows and inward investment.
Economies of scale.
Increased employment opportunities.
Infrastructure.
Diversification.
Better standards.

Question 9

What are the cons of globalisation?

Answer 9

Increased inequality.
Environmental impacts.
Structural unemployment.
Movement of labour.
Damage to traditional cultures.

Question 10

What are the cons of MNCs in globalisation?

Answer 10

Profit motive.
Negative impacts on small firms.
Environmental impact.
Exploitation of labour and resources.
Tax avoidance.

Question 11

What’s international trade?

Answer 11

The exchange of goods and services between countries.

Question 12

What’s free trade?

Answer 12

Where there are no restrictions on the flow of goods and services between countries. There’s no government intervention.

Question 13

What’s absolute advantage?

Answer 13

When a country can produce a good or service more cheaply than another country.

Question 14

What’s comparative advantage?

Answer 14

When a country can produce a good or service at a lower opportunity cost than another country. The theory of comparative advantage states that countries should specialise where they have a comparative advantage and then trade with other countries.

Question 15

What assumptions are made when discussing comparative advantage?

Answer 15

There’s no transport cost.
Costs are constants and there’s no economies of scale.
Goods are homogenous.
Factors of production are perfectly mobile.
There’s no terms of trade between countries.

Question 16

What’s specialisation?

Answer 16

The process of focusing on a specific task or area of production.

Question 17

What are the advantages of specialisation and trade?

Answer 17

Can increase world output.
Countries can benefit from economies of scale.
Greater choice for consumers.
Greater competition.

Question 18

What are the disadvantages of specialisation and trade?

Answer 18

Can lead to over-dependance.
Can cause structural unemployment.
Environmental damages.
Countries may experience a loss of sovereignty.
Potential loss of culture.

Question 19

What factors influence the pattern of trade?

Answer 19

Comparative advantage.
Emerging economies.
Trading blocs and bilateral trading agreements.
Relative exchange rates.

Question 20

What’s protectionism?

Answer 20

When a country takes action to protect its own industry or jobs by restricting trade with other countries. This could also be done by joining a customs union

Question 21

What are the reasons for trade restrictions?

Answer 21

To help establish an infant industry.
To protect domestic employment.
To prevent potential dumping.
To restrict imports of products with externalities.
To improve current account deficit on balance of payments.

Question 22

What are the types of restrictions on free trade?

Answer 22

Tariffs.
Quotas.
Subsidies.
Embargoes.
Non-tariff barriers.

Question 23

What’s a tariff?

Answer 23

Taxes placed on imported goods. E.g, the EU have a tariff of 10% on cars.

Question 24

What’s a quota?

Answer 24

A physical limit on the volume of imports.

Question 25

What’s a subsidy?

Answer 25

Government payments to help reduce production costs.

Question 26

What’s an embargo?

Answer 26

A total ban on imported products.

Question 27

What’s a non-tariff barrier?

Answer 27

Employing measures such as complex legal forms, health and safety inspections, and product specifications to discourage imports by raising costs.

Question 28

What are the impacts of trade restrictions on consumers?

Answer 28

Higher prices.
Less choice.

Question 29

What are the impacts of trade restrictions on producers?

Answer 29

Can sell more goods at a higher price.
Potential for higher costs if tariffs are placed on imports needed for production.
Foreign producers will lose out.

Question 30

What are the impacts of trade restrictions on workers?

Answer 30

Can create new jobs and increase employment.

Question 31

What are the impacts of trade restrictions on governments?

Answer 31

Can gain tariff revenues.
Political popularity.
Can lead to an inefficient economy.

Question 32

What are the impacts of trade restrictions on living standards and equity?

Answer 32

Deadweight welfare loss.
Can lead to trade wars.
Has a regressive effect on the distribution of income.

Question 33

What’s terms of trade?

Answer 33

The real value of countries’ exports in terms of their imports. It’s said to be favourable / an improvement when you can buy more imports with the same number of exports.

Question 34

What’s the formula for terms of trade?

Answer 34

(average export price index/average import price index) x100

Question 35

What factors influence a country’s terms of trade in the short run?

Answer 35

Exchange rates
Inflation
Demand/Supply of imports/exports

Question 36

What factors influence a country’s terms of trade in the long run?

Answer 36

Changes in productivity
Changing incomes

Question 37

What are the impacts of changes to a country’s terms of trade?

Answer 37

Improve current account on balance of payments (if imports/exports are inelastic).
A fall in GDP
Long term decline in living standards

Question 38

What are the benefits of free trade?

Answer 38

Increased efficiency and improved allocation of world resources (comparative advantage).

Access to goods which can’t be provided domestically.

Lower prices (Competition, EofS, technological transfers).

Greater consumer choice.

Economic growth.