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eco 22 > international economics (term four) > Flashcards

international economics (term four) Flashcards

1
Q

what if Australia didn’t trade ?

A

no imports - less choice

no exports - less economic growth & employment

no competition - higher prices

shortages & surpluses of products

inefficiency

decreased output (GDP)

economic contraction

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2
Q

why is trade important ?

A

access to imports - increased consumer satisfaction & standard of living

markets for exports - increased economic growth & employment

specialization - increased output

economies of scale

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3
Q

trade surplus

A

exports are greater than imports - prima facie, the economy should expand

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4
Q

trade deficit

A

imports are greater than exports - prima facie, the economy should contract

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5
Q

why nations trade ?

A

supplement their own resources

compensate of differing factor endowments (unequal distribution of resources, human skills, capital & technology)

desire for an improved standard of living

profit motive

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6
Q

stakeholders positively impacted by international trade

A

economy - economic growth

consumers - more choice & lower prices

workers - job opportunities

businesses - imported capital & incentive to compete

exporters - economies of scale

government - more taxes

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7
Q

stakeholders negatively impacted by international trade

A

workers & local businesses - workers become unemployed if local businesses cannot compete with foreign competition

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8
Q

stakeholders positively impacted by multi-national companies

A

consumers (short-term) - lower prices (mnc’s achieve economies of scale & innovate)

workers - job opportunities (local employment in host countries)

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9
Q

stakeholders negatively impacted by multi-national companies

A

consumers (long-term) - higher prices (mnc’s monopolize & gain market share)

government - less taxes (mnc’s transfer price to avoid tax)

environment - degradation & destruction

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10
Q

transfer price

A

price charged for goods between two subsidiaries of one multi-national company located in different countries

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11
Q

complexity of international trade

A

different currencies have different purchasing powers & levels of inflation

different cost structures have different methods of production, domestic market sizes & transport costs

different social & technical aspects have different customs, tastes & requirements

different government policies have different motives for personal profit & welfare leading to inequality

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12
Q

sustainable economic growth

A

rate of growth that increases production, consumption & income (current & future standards of living)

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13
Q

full employment

A

socially acceptable rate of unemployment (everyone who wants a job has a job)

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14
Q

price stability

A

little variation in prices (minimal inflation)

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15
Q

sustainable development

A

rate of growth that cares for the environment & future generations

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16
Q

internal stability

A

state of the economy where there is full employment & price stability

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17
Q

external stability

A

state of the economy where financial obligations to the rest of the world are met through government policy measures

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18
Q

composition of trade

A

what we trade

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19
Q

direction of trade

A

where & with whom we trade

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20
Q

primary products

A

products with minimal to no processing

no price mark-up

(e.g. agriculture)

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21
Q

simply transformed goods

A

intermediate goods used as inputs for other products

minimal price mark-up

(e.g. leather)

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22
Q

elaborately transformed goods

A

finished products

high price mark-up

(e.g. vehicles)

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23
Q

percentage change expression

A

[(new - old) / (old)] x 100

24
Q

opportunity cost expression

A

(give up) / (gain)

25
Q

absolute advantage

A

a nation’s ability to produce at a lower direct resource cost than another nation

26
Q

comparative advantage

A

a nation’s ability to produce at a lower opportunity cost than another nation

27
Q

adam smith’s theory

A

trade should only occur if two nations have absolute advantage in two separate products

28
Q

david ricardo’s theory

A

trade should occur even if one nation has absolute advantage in both products

29
Q

absolute & comparative advantage assumptions

A

two nations producing two goods or services

fixed technology

perfectly mobile resources

no transport costs

30
Q

heckscher-ohlin theory

A

composition & direction of trade are based on factor endowments

nations exports products where they have large factor endowments

nations import products where they have small factor endowments

31
Q

competitive advantage

A

a nation’s ability for its industries to innovate & upgrade

32
Q

diamond of national advantage

A

factor conditions - advantage in factors of production (e.g. infrastructure investment or specialized workforce training)

demand conditions - developed domestic market (clear view of consumer demand to help anticipate international market needs)

related & supporting industries - efficient & internationally competitive supplier industries

firm strategy, structure & rivalry - company creation, management & domestic rivalry need to be disciplined, flexible & conducive to innovation

33
Q

globalization

A

growing integration of national economies to form a single interdependent global economy

34
Q

globalization positives

A

lower prices - economies of scale, lower transport costs & lower labor costs

greater variety - freedom of trade & improved communication

35
Q

globalization negatives

A

inequality - widening gap, host countries abandoned & local businesses deposed

environmental harm - degradation & pollution

36
Q

globalization measures

A

trade intensity

capital flow

exchange rate

law of one price

37
Q

trade intensity expression

A

[(new - old) / (old)] x 100

38
Q

multi-national company

A

enterprises that operate in more than one country but are managed from a home country

39
Q

multi-national company characteristics

A

twenty-five percent of revenue derives from outside the home country

headquarters based in the home country

offices & workers in host country

40
Q

why multi-national companies exist ?

A

ninety percent of global demand is not met through local supply

41
Q

why location of natural factor endowments are important ?

A

multi-national companies source from nations with an abundance of resources to produce

(e.g. mineral reserves or cheap labor)

42
Q

successful examples of digital & other innovation

A

l’oréal’s digital try-on app for make-up

philips innovating low-cost, solar-powered solutions for low-income populations

43
Q

how infrastructure integration including logistics are important ?

A

multi-national companies need efficient methods of getting the product from the source to the consumer

e.g. distribution centres

44
Q

government incentives

A

financial incentives include grants or loans

fiscal incentives include lower tax rates or tax holidays

other incentives include subsidies or free trade zones

45
Q

trade theory link to multi-national companies

A

location of natural factor endowments :

hecksher-ohlin theory - factor endowments

comparative advantage - lower opportunity cost

digital & other innovation :

competitive advantage - factor conditions, related & supporting industries

infrastructure integration including logistics :

competitive advantage - factor conditions, related & supporting industries

government incentives :

competitive advantage - demand conditions, firm strategy, structure & rivalry

comparative advantage - lower opportunity cost

absolute advantage - lower direct resource cost

46
Q

positives of technological change on multi-national companies

A

production is faster & cheaper

economies of scale can be achieved

promotes innovation (competitive advantage)

47
Q

negatives of technological change on multi-national companies

A

loss of jobs

48
Q

causes of tax minimization strategies for multi-national companies

A

high tax rates

opportunity to profit shift to low-tax countries through transfer pricing

49
Q

effects of tax minimization strategies for multi-national companies

A

loss of tax revenue for governments

leads to heavier tax on alternative sources (e.g. individuals)

50
Q

transfer pricing link to tax avoidance by multi-national companies

A

multi-national companies manipulate the transfer price to profit shift into low-tax jurisdictions

51
Q

how resolution of global political conflicts impact multi-national companies ?

A

increased global trade

more opportunity to maximize efficiency & achieve economies of scale

access to more factor endowments

52
Q

why consumer information requests from mult-national companies are changing ?

A

consumers want increased accountability & transparency from multi-national companies

(e.g. where their product came from, who made their product, how their product was made & how their product impacts the environment)

53
Q

world trade organization

A

only international organization dealing with the rules of trade between nations

164 member states

promote free trade by lowering tariffs & barriers, police trade agreements, mediate trade disputes & impose trade sanctions

ensure trade flows smoothly, predictably & freely

54
Q

international monetary fund

A

organization fostering global monetary co-operation & securing global financial stability

189 countries

economic surveillance & reporting, providing loans to build international reserves, to stabilize currencies & to restore conditions for strong economic growth, work with governments to improve economic growth, to create jobs & to modernize economic policies & institutions

ensure the system of exchange rates & international payments that enable countries to trade is stable

55
Q

the world bank

A

five institutions funding developing countries

189 member countries

provide technical & financial support to developing countries, end extreme poverty & increase the income of the poor

end extreme poverty & promote shared prosperity in a sustainable way

eco 22 (4 decks)

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