key terms revision IA1

Question 1

factor endowment

Answer 1

having an advantage to produce a specific good

e.g. natural resources and sophistication of capital stock

Question 2

economies of scale

Answer 2

same sizer (but can have different resources)

Question 2

(3 dot points)

advantages of international trade

Answer 2

• firms have competition
• lower priced goos for consumers
• structural change/specialisation

Question 3

(3 dot points)

disadvantages of international trade

Answer 3

• unequal income distribution
• loss of industries (leads to unemployment)
• overdependance

Question 4

explain absolute advantage

Answer 4

whoever has the capacity of more output should specialise in that

Question 5

comparative advantage

Answer 5

based on opportunity cost = smaller ratio = smaller losses = they should take one for the team

Question 6

competitive advantage

Answer 6

improving attributes and resources

(note there are 6 aspects)

Question 7

trade intensity (TI)

Answer 7

measurement of trade between economies
ratio of TI and GDP measures trade patterns

*can see positive versus negative trade sums

Question 8

increase/decrease in TI

Answer 8

means more/less economic interdependance
more/less goods are being imported for consumer use

Question 9

trading blocs

Answer 9

a closed group of economies that trade between each other

Question 10

advantages of trade blocs

(name 2)

Answer 10

1. greater market access within the bloc
2. protection from lower quality imports

Question 11

disadvantages of trading blocs

(name 2)

Answer 11

1. loss of benefits
2. retaliation from those outside of the bloc

Question 12

factors that impact MNCs

Answer 12

• location of natural factor endowments
• advantages in technology
• infrastructure and transport
• government incentives

Question 13

WTO

Answer 13

encourage and facilitate the liberalisation of trade (e.g. lower tariffs, lessen trading barriers)

Question 14

IMF

Answer 14

provide finanical stability of member countries (e.g. stabilise exchange rates, issue crisis pachages)

Question 15

World Bank

Answer 15

boost development of poorer economies (e.g. loans, debt relief packages)

Question 16

floating e.r.s.

(overview)

Answer 16

• value of currency determined by market forces
• fluctuates based on inflation and interest rates

Question 17

advantage of floating e.r.s.

Answer 17

automatic adjustment

Question 18

disadvantage of floating e.r.s.

Answer 18

volatility

Question 19

fixed e.r.s.

(overview)

Answer 19

• currency fixed to government policies
• remains stable through government intervention (buying or selling revenue)

Question 20

advantage of fixed e.r.s.

Answer 20

stability

Question 21

disadvantage of fixed e.r.s.

Answer 21

loss of monetary policy autonomy

Question 22

managed e.r.s.

(overview)

Answer 22

• a hybrid system - mostly determined by market forces but occasional government intervention
• floats but managed by central bank

Question 23

advantages of managed e.r.s.

Answer 23

combined benefits of both

Question 24

disadvantages of managed e.r.s.

Answer 24

turns those with floating e.r.s. off bc they want the market to be able to determine currency value.

Question 25

why do exchange rates matter?

Answer 25

• affect a countries trade balance based on imports and exports
• impacts investment flows 9attractiveness of one currency to another)
• OVERALL influencing economic stability and growth
  BASED ON APPRECIATION & DEPRECIATION