Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ECON 102 > Lectures 5&6 > Flashcards

Lectures 5&6 Flashcards

1
Q

What does ICT stand for?

A

Information and Communication Technology

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What lowered the cost of moving ideas?

A

Revolution in ICT (Information and Communication Technology) lowered the cost of moving ideas

This cost went from very expensive to nearly cost less in 20 years, which allowed continuous confirmed exchange of information:

  • Emails, editable files for cooperative work
  • Web-based coordination software packages (logistics, inventory control, quality control, etc.)
  • Solved coordination problems and help with decision making regardless of distance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is ICT?

A
  • “I” for information (computing and data storage costs)
  • “C” for communication (transmission costs and reliability)
  • “T” for technology (new working methods and workplace organization)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Name the 3 laws driving the ICT revolution

A
  1. Moore’s law
  2. Gilder’s law
  3. Metcalfe’s law
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Moore’s law

A

Computing power grows exponentially (computer chip performance doubles) -> drives the “I”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Gilder’s law

A

Bandwidth grows 3 times faster than computing power -> drives the “C”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Metcalfe’s law

A

Usefulness of a network rises with the square of the number of users

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are network effects?

A
  • Network effects are equivalent to internal economies of scale: the average cost gets lower with more users
  • Also, the willingness to pay for a network of each consumer increases with the density of the network (So the firm’s profit per user is higher for a dense network than for a less dense one)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What do network effects lead to?

A

Leads to monopoly power by firms in specific market segments subject to strong network effects (Eg. YouTube, Twitter)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

ICT revolution is much _________ than earlier economic revolutions

A

Faster

The steam revolutions took decades, whereas the ICT revolution only took years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the impact of ICT revolution?

A

Reorganization of work and production

The ability to send ideas almost anywhere for almost nothing changed:

  • Work and management practises
  • Relationships among firms, with their suppliers and with customers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Why has the ability to send ideas almost anywhere for almost nothing changed?

A
  • Production is easier to coordinate at distance
  • Information-management innovations -> Easier, cheaper, faster, safer to coordinate separate complex activities spatially
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

For the unbundling of G7 factories, the ICT revolution made __________ feasible (possible to do easily or conventionally).

Large wage differences make it profitable

A

Offshoring

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Define offshoring

A

Work getting done by a firm in a different country, typically to take advantage of cost differences

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Define outsourcing

A

Contracting work to a third party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

A firm outsources without offshoring when it _____________.

A

Hires a close-by law firm to review contracts instead of having an in-house staff of lawyers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

A Canadian firm offshores without outsourcing when it _____________.

A

Establishes a customer service center in India to serve its Canadian clients

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Apple offshores and outsources when it ___________.

A

Hires Foxconn to assemble its products in China

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the benefits of offshoring?

A
  • Lower costs

- Getting work done faster through a global talent pool

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the risks of offshoring?

A
  • Criticized for transferring jobs to other countries
  • Language
  • Communication problems
  • Geopolitical risks
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are the benefits of outsourcing?

A
  • Take advantage of specialized skills

- Cost efficiencies and labor flexibility

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the risks of outsourcing?

A
  • Misaligned interests along firms
  • Increased reliance on third parties
  • Lack of in-house knowledge of important business operations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

With the 1st unbundling, _____ the work was done at ____________ and by ____________ (in-house production)

A
  • all
  • the same location
  • the same firm
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

With the 2nd unbundling, __________ come from _______________ located _____________ with respect to the “nationality” of the final product

A
  • many parts
  • independent firms
  • in the same or different countries
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

In 2011, ________ iPhones were sold, and ____________ were made in the US

A
  • 70 million

- none of them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

_______ is a key reason why the iPhone is assembled in China by Foxconn

A

Cheap labor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What are 2 reasons the iPhone is assembled in China by Foxconn?

A
  • Cheap labor

- Fast labor (it takes 15 days to hire 8700 engineers to supervise production against 9 months in the US)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What does crossing borders drive?

A

Crossing borders drives “knowledge offshoring”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What do G7 firms do to ensure offshores production happens smoothly?

A

G7 firms offshore know-how along with jobs

Know-how moves across national borders within GVC (Global Value Chain) boundaries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What does GVC stand for?

A

Global Value Chain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Define the value chain

A

The value chain describes the full range of activities that firms and workers do to bring a product or service from its conception to its end use and beyond. This includes design, production, marketing, distribution, and support to the final customer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Define the supply chain

A

The supply chain emphasizes the manufacturing and distribution-related steps

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Define the global value chain

A

The global value chain is a worldwide network of units involved in the design, production, handling, and distribution of materials, finished products and/or services (These units may operate under the same ownership or be independent firms)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What does FDI stand for?

A

Foreign Direct Investments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What do FDI (Foreign Direct Investments) refer to?

A

It refers to investments made to acquire a lasting interest in enterprises operating outside of the investor’s own country. The purpose is to gain an effective voice in the management of the enterprise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Define Greenfield FDI

A

Where a parent company builds its operations in a foreign country from scratch (new production facilities, new administration/research units, new distribution or sales units)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Define Brownfield FDI

A

When a company purchases or leases existing production facilities to launch a new production company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Define Horizontal FDI

A

The investment is in the same “business” abroad as the investor operates domestically

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Define Vertical FDI

A

The investment is made in a foreign business that plays the role of a supplier or a distributor with respect to the domestic main activity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What is new in this phase of Globalization?

A
  • ICT enables G7 firms to precisely control what goes on inside developing nations factories
  • Global Value Chains (GVCs) are “pipes” for new knowledge flows
  • Know-how is complex and lumpy, so new knowledge flows happen mostly within GVCs
  • ICT Revolution leads to a “GVC Revolution” mostly for large G7 firms
  • Massive North-to-South knowledge flows transform globalization’ s impact
  • ICT literally “liberated” G7-firms’ know-how from G7 labor
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

New North-to-South knowledge flows

A
  • The nature of things crossing borders changed
  • Fundamentally changed the nature of globalization and its impact on:
    —— The global economic landscape
    —— Rich nation economies
    —— Poor nations who got the factories/know-how
    —— Poor nations who did not get the factories/know-how
  • The relevant border of knowledge no longer matches nations borders, but also GVCs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

GVC revolution transforms _____________ worldwide.

A

Manufacturing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

The income growth due to __________ implied an __________ in ___________: “commodity super cycle”

A
  • industrialization
  • increase
  • commodity demand
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Which countries have been beneficiaries of the commodity boom (“Commodity super cycle”)

A
  • Canada
  • Australia
  • Russia
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Terms of trade formula

A

(Price of exports)/(Price of imports)

Evaluated by looking how (real) prices change over time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Commodity super cycle: commodity prices tend to go through ________ periods of boom and bust, known as __________.

A
  • extended

- super cycles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

In general, why are commodity price movements important for Canada?

A

They help determine the country’s terms of trade, exchange rate, employment, income, and inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

How many broad-based commodity priced super cycles were there since the early 1900s?

A

4

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

The most recent super-cycle started in __________ and has been (at least until recently) ______________.

A
  • the mid-1990s

- in its downsizing phase

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Super-cycles are the result of the interaction of _________________, unexpected demand surges and slow-moving responses

A
  • large and long
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Define Value Added (VA)

A

The value added of an industry, also referred to as gross domestic product (GDP)-by-industry, is the contribution of an industry to overall GDP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Value added is equal to ___________________.

A

The difference between an industry’s gross output (sales plus other operating income) and the cost of its intermediate inputs (including energy, raw materials, semi-finished goods, and services) that are purchased from other industries

53
Q

Value added can be computed _______________ or at the ______________.

A
  • at the firm (or GVC level)

- industry level

54
Q

Value added _________ profits

A

Value added does NOT equal profits!
(At the firm level, VA is the difference between the value of its gross output and the value of what the firm buys from other firms. To obtain profits, one has to deduct wages, loans, etc.)

55
Q

GDP shares change; the loss in the G7’s GDP share was won by just ________________ (the R11)

A

Eleven rising economies

i.e. by nations that gained at least 3/10th of a percentage point of world GDP share from 1990 to 2010

56
Q

Who are the R11?

A
  • China, India, Brazil, Indonesia, Nigeria, Korea, Australia, Mexico, Venezuela, Poland, and Turkey
57
Q

Aside from the R11, the Rest of the World (RoW)’s share is ____________

A

Fairly flat

58
Q

Impact on global poverty

A
  • Post 1993: hi-middle poverty plummets -> 650 million fewer poor!
  • Other’s poverty’s keep rising
  • The 2nd unbundling has helped many but not all in developing countries
59
Q

Define IIT (Intra-Industry Trade)

A

IIT: Exports and imports from products belonging to the same industry

(These products are differentiated finished products (BMW vis Toyota) or intermediate products belonging to the same class of products (car seats vs car engines))

60
Q

IIT is ________ between Germany and France because of _______, and _______ between Mexico and the US because of ___________.

A
  • high
  • EU
  • high
  • NAFTA
61
Q

IIT is _______ between Japan/Thailand or Germany/Poland because of ___________.

A

The 2nd unbundling

62
Q

What does BIT stand for?

A

Bilateral Investment Treaty

63
Q

What does IIT stand for?

A

Intra-Industry Trade

64
Q

Define BIT (Bilateral Investment Treaty)

A

An agreement between 2 countries regarding the promotion, the protection and the liberalization of investments made by investors from respective countries in each other’s territory

65
Q

BIT provides a number of guarantees such as _______________.

A
  • fair and equitable treatment (equivalent to non-discrimination for investments)
  • protection from expropriation
  • free transfer of means, etc.
66
Q

A controversial aspect of BIT is that they typically allow for _____________ whereby _______________________. This has led to ___________ and ____________, especially for ______________ countries.

A
  • a separate dispute resolution mechanism
  • an investor whose rights under the BIT have been violated has recourse to binding international rather than suing the host state in its own courts
  • greater liability risks
  • uncertain net gains from BITs
  • less developed
67
Q

What year were new BITs signed?

A

1987

68
Q

Before 1995, tariffs in the ______ are low (tariffs decreased gradually in GATT rounds), and tariffs in the ________ are _________.

A
  • North
  • South
  • high
69
Q

After 1995, developing nations unilaterally ________ tariffs massively: protectionism becomes ______________ (not even in GATT/WTO rounds!)

A
  • lowered

- destructionism

70
Q

Before the 1990s, ______ RTAs (Regional Trade Agreements) are signed, and they are mostly __________ (i.e. only tariff preferences).

A
  • few

- “shallow”

71
Q

In the mid-1990s, the ___________ of RTAs ______ (as does their depth)

A
  • number

- soars

72
Q

Deep trade agreements include a wide range of issues beyond tariffs, such as _________________. These policy areas involve ______________ (or behind-the-border measures). The effects of these measures are _______ to assess than border agreements (trade creation and trade diversion) because ______________.

A
  • Services, investment, intellectual property protection, competition policy
  • domestic regulations
  • more difficult
  • changes to domestic regulations are difficult to tailor so that they favour only selected trade partners
73
Q

Why does deep integration occur?

A

Because as trade becomes more open, countries’ policies increasingly depend on each other (collective decision is better than unilateral decision-making)

74
Q

Deep integration agreements may be necessary to _____________.

A

Promote trade in certain sectors and economic integration more broadly

75
Q

Rapid growth in _________ and _______ G7 growth produced ___________.

A
  • developing nations
  • stagnate
  • the Great Convergence
76
Q

Implication 1: changes in the competition among nations

A
  1. De-nationalized comparative advantage

2. Changed nature of trade

77
Q
  1. Comparative advantage de-nationalized
A
  • In the 1st unbundling, exports are a “bundle” of national know-how, labor, capital, institutions
  • In the 2nd unbundling, exports are a mixture of several national comparative advantages
  • Global Value Chains (GVCs) redraw international borders of comparative advantage -> Ricardo loses relevanvance
78
Q

Globalization is not about exploiting existing comparative advantage anymore, it is ______ comparative advantage

A

Changing

79
Q

What does the principle of comparative advantage explain?

A
  • Why nations trade
  • Who gains from trade
  • What do changes in one nation’s competitiveness mean for other nations
  • Who makes (and exports) what
80
Q

Who gains from trade?

A

Trade allows each nation to use its resources more efficiently

81
Q

If technology flows make foreign nations better at producing goods the G7 used to export, the change ___________ G7 nation.

A

May harm

82
Q

Gains from trade _______ automatically hold when the sources of comparative advantage cross borders as well as good

A

Does not

83
Q

If you help others get good at things you are really good at, the new competition _____________.

A

May harm you

84
Q

Offshoring ______ the competitiveness of the ____________ doing it.

A
  • improves

- Northern firms

85
Q

Most countries/firms ________ to participate in the GVCs. This pushes countries to _______________.

A
  • want

- implement policies facilitating their participation

86
Q

(High-tech) + (Low-wages) ______ (Low-tech) + (Low-wages)

A

Beat

87
Q

A country’s exports now depend on _____________ in global value chains rather than underlying comparative advantage as with the 1st unbundling

A

Its “position”

88
Q

Observed trade flows can be _________.

A

Misleading

89
Q

“21st century trade” is more _________.

A

Complex

90
Q

Flows of goods, services, intellectual property, capital, and people generated by the 2nd unbundling are _________ to measure.

A

More difficult

91
Q

There is an ____________ of the change for Northern-developed countries vs Southern-developing countries

A

Asymmetric nature

92
Q

There is nothing fundamentally new about 2nd unbundling trade among ________ (North-North)

A

Rich nations

93
Q

What was a big change in the North-South asymmetry of the change?

A

A big change is factories crossing North-South borders

94
Q

Why asymmetric?

A
  • At the start of the 2nd unbundling, the knowledge-labour ratio was radically higher in the North than in the South
  • Ability to coordinate internationally was a revolutionary boost in developing nations’ abilities to export parts, but only mild stimulus G7 parts exporters
  • The 2nd unbundling acted like an asymmetric trade opening (like Northern “tariffs” on parts falling much more than Southern tariffs)
95
Q

Until the 2nd unbundling, mostly _________ parts going to __________.

A
  • Northern

- South

96
Q

Implication 2: changes at the product level

A
  1. Smile curve

2. Servicification of manufacturing

97
Q

Input activities

A
  • Primary (copper, rare earth, petroleum, etc.)
  • Manufactures (pressing, welding, assembling, etc.)
  • Services (design, software, retail, transport, etc.)
98
Q

The smile curve comes from dividing value added between ______________, ______________ and ______________.

A
  • pre-fabrication services (R&D)
  • fabrication (manufacturing, assembly)
  • post-fabrication services (marketing, after-sales services)
99
Q

The smile curve can be extended at the _________ level (i.e. at the level of the sectors: primary, manufacturing and services)

A

Aggregate

100
Q

Why servicification?

A
  1. More services embedded in the good itself -> More deign and technology
  2. More services in production process -> Domestic and foreign outsourcing -> More coordination and transportation services
  3. Commoditization of fabrication -> Hi-tech + low wages radically reduce cost of fabrication, but not service inputs
101
Q

Implication 3

A
  1. Labor market hollowing
  2. Rising equity premiums
  3. Globalization impact with finer resolution
102
Q

2nd unbundling’s 2 key aspects of labor market hollowing

A
  1. North-South production unbundling (fractionalization of production and offshoring)
  2. North to South knowledge flows

(Both tend to change impact of deeper globalization on winners and losers within a nation)
(Start with labor)

103
Q

Labor’s slice of GDP “pie” has _________.

A

Decreased

104
Q

Define GDP

A

GDP (Gross Domestic Product) is a measure of the market value of all final goods and services produced in a period of time (Eg. Annual)

105
Q

Name 3 ways to measure GDP

A
  1. Expenditure approach
  2. Production approach
  3. Income approach
106
Q

Expenditure approach formula

A 
GDP = C + I + G + X - M, where 
C = Consumption 
I = Investment 
G = Government spending 
X = Exports 
M = Imports
107
Q

Define production approach

A

The sum across all industries of their Value-added (VA), where VA = Value of Output - Value of Intermediate Consumption

108
Q

Define income approach

A

Adding incomes that firms pay households for factors of production they hire: wages for labor, interest for capital, rent for land and profits for entrepreneurship. This gives the GNI (Gross National Income)

109
Q

What does GNI stand for?

A

Gross National Income

110
Q

GDP = ______.

A

GDP = GNI

111
Q

In practice, does GDP = GNI?

A

No, because of errors of measurement

112
Q

Traditionally, labor earns about _______ of national income, but over the past 20 years or so, the share of labor income has ____________.

A
  • 60%

- decreased below 60%

113
Q

Know-how from North gets to be applied in ______________, so it ______ in value.

A
  • both North and South

- gains

114
Q

Capital wedge: _____________.

A

Gap between return-to-capital and the safe real rate if return

115
Q

What do capital knowledge gains contribute to?

A
  • Increasing income inequalities within G7-type countries

- Decreasing the share of national income going to labor

116
Q

What are the 3 main causes of increased income inequality and lower labor share of national income?

A
  1. Globalization triggered by the 2nd unbundling
  2. Technological changes triggered by the ICT revolution
  3. Increased firm monopoly power and concentration

(There are reasons to think that technological changes have had a greater impact on the share of labor than globalization)
(Increased firm monopoly power is a more recent explanation gaining credence)

117
Q

Labor share falling is linked to _________.

A

Increased income inequalities

118
Q

There is a push to develop tools to measure __________ to better address inequality issues.

A

GDP per income groups

119
Q

International competition is no longer at the _________ level, but more and more at the __________ level and at the _______ level.

A
  • product
  • production
  • job
120
Q

Globalization impact with 2nd unbundling

A
  1. More individual
  2. More sudden
  3. More unpredictable
  4. More uncontrollable
121
Q

Globalization impact with 2nd unbundling: More individual

A
  • 1st unbundling impact was sector-by-sector
  • The 2nd unbundling impact is stage-by-stage, or even job-by-job -> Thus, its impact is more individual
  • The 2nd unbundling breaks up the “national team” of technology and labor
122
Q

Globalization impact with 2nd unbundling: More sudden

A
  • The 1st unbundling required firms and nations to build most of the supply chain to be competitive in the final good
  • Under the 2nd unbundling, GVC brings everything a firm does not have -> “Powered industry” just add labor and stir
  • Shift in comparative advantage can be faster
123
Q

Globalization impact with 2nd unbundling: More unpredictable

A
  • 1st unbundling globalization was somewhat predictable -> Sectors you would lose next looked very much like the ones you recently lost; sectors where you would gain export competitiveness in looked very much like those that gained it in recent past
  • 2nd unbundling globalization by stages is not like this -> Complex interaction of factors used (Eg. Low-skill labor), importance of timelines, quality, connection to other stages
  • It is increasingly more difficult to know what will get offshored next
124
Q

Globalization impact with 2nd unbundling: More uncontrollable

A
  • The 1st unbundling’s pace was determined by gradual technical advances in shipping, and gradual trade liberalization (the former is slow and the latter is controlled by governments through tariffs, etc.)
  • The 2nd unbundling’s pace is determined by advances in ICT (Recall: Moore’s laws, Metcalfe’s law, etc.)
  • Governments have a hard time controlling advances and disruptive implications of ICT
125
Q

The unbundlings led to?

A

The Great Convergence

126
Q

The 1st unbundling led to?

A

The Great Divergence

127
Q

The 2nd unbundling led to?

A

The Great Stagnation

128
Q

The 1st unbundling led to _______ growth in the North, _______ growth in the South

A
  • high

- low

129
Q

Why can RTA (Regional Trade Agreement) be costly to its members, too?

A

There can be trade diversion or no trade creation, possibly harming countries that are part of a regional trade agreement.

ECON 102 (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions