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Economics Y2 > Macro L1 - 3 > Flashcards

Macro L1 - 3 Flashcards

1
Q

Globalisation:

A

The process of economics integration of different countries through growing freedom of movement across borders of goods, services, capital and people

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2
Q

Causes of globalisation:

A
  • Trade liberalisation
  • Trading blocs
  • Growth of MNCs
  • Technological advancements
  • Mobility of labour
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3
Q

Trade liberalisation:

A

Removal of restrictions on free exchange of goods and services between nations

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4
Q

Types of trade liberalisation:

A

1) Bilateral
2) Consensus
3) Multilateral
4) Orthodoxy

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5
Q

Bilateral trade liberalisation:

A

Involving 2 parties, especially countries

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6
Q

Consensus:

A

General agreement

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7
Q

Multilateral trade liberalisation

A

Involves several parties, especially countries

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8
Q

Orthodoxy:

A

Authorised or generally accepted theory/practice

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9
Q

What is the WTO responsible for?

A

Responsible for negotiating reductions in tariffs and other trade barriers

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10
Q

MNC:

A
  • Multinational corporation
  • Business based in one country but does business in other countries
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11
Q

TNC:

A
  • Transnational corporation
  • Business that operates in many countries but does not have a centralised system
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12
Q

Advantages of globalisation:

A
  • Lower prices as international competition has increased
  • Benefits of trade –> greater growth + promotes economic development
  • More employment as firms increase in size
  • Benefits from large economies of scale
  • Free movement of labour and capital (FDI)
  • Technological transfers and innovations
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13
Q

Disadvantages of globalisation:

A
  • Growing inequality –> top earners have own a lot of the wealth in world
  • Higher structural unemployment due to deindustrialisation
  • Environmental costs
  • Limits gov ability to raise tax revenue
  • Trade imbalances eg deficits + surpluses
  • Greater risk of external shocks eg Financial Crisis of 2008
  • Less cultural diversity –> similar goods and services everywhere
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14
Q

Evaluation of globalisation:

A
  • About 1bn people live in countries where trade is less than 1/4 of GDP
  • Shows not all parts of world are well integrated
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15
Q

Comparative advantage:

A

When a country produces good or service for lower opportunity cost than other countries

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16
Q

Industrialisation:

A

Development of industries in country/region on a wide scale

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17
Q

Deindustrialisation and what it causes:

A

Loss of industry that occurs due to loss of comparative advantage, causing structural unemployment

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18
Q

What does globalisation allow countries to do and how is this beneficial for consumers (+ evaluation)?

A
  • Specialise in goods and services where they have comparative advantage
  • Lower prices + increased choice
    Evaluation:
  • Difficult to find other whether goods are produced ethically
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19
Q

How does globalisation limit gov’s ability to raise tax revenue?

A
  • If one country reduces corporation tax, TNCs have incentive to relocate to that country
  • Departure of TNCs reduces tax revenue (countries try to undercut taxes for this reason)
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20
Q

How does globalisation aid producers?

A
  • Firms can expand beyond what is possible in one country
  • Production can be shifted to most advantageous location
  • More competition
  • More choice of supplier
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21
Q

Offshoring:

A

Relocation of business process from 1 country to another

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22
Q

Bargaining power:

A

Capacity of one party to dominate the other in negotiation

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23
Q

Which workers gain from globalisation?

A

Workers in industries w/ comparative advantage

24
Q

How do workers lose out because of globalisation?

A
  • TNCs can threaten to offshore if workers demand wage rises
  • Low skilled workers as industries they work in tend to become uncompetitive
25
Q

Give one stat to show the environmental costs of globalisation (+ evaluation):

A
  • Shipping creates between 2 and 3% of world’s total greenhouse gas emissions
    Evaluation:
  • However, it provides opportunity for green technologies
26
Q

Free trade:

A

International trade w/out restrictions

27
Q

Protectionism:

A

Policy of restricting imports through trade restrictions

28
Q

Reasons for use of trade restrictions (w/ examples):

A

1) Risk to national security eg Chinese technology companies leaving US more vulnerable to Chinese attacks
2) Public safety eg Japanese seafood after Fukushima disaster
3) Tax revenue (esp developing countries)
4) Protect domestic industries (employment)
5) Retaliation eg Trump v China
6) Preventing dumping eg China dumping steel
7) (Improve current account deficit)
8) (Avoid risk of over-specialisation)

29
Q

Infant industry:

A

Industry that is new to a country but already established in others

30
Q

What is the infant industry argument (+evaluation)?

A
  • When developing country enters an industry, quality of goods will be low
  • Nation would struggle to industrialise, as foreign imports would outcompete them
    Evaluation:
  • If protectionism is used , it allows room for inefficiencies
31
Q

Purposes of retaliatory protectionist measures:

A

1) To punish
2) Persuade other country to remove trade restrictions
3) Serve as warning to other countries

32
Q

Dumping (+ evaluation):

A
  • When an exporter sells below production costs
  • Dumping is very hard to prove –> if proven that it is not taking place, there could be strict retaliation (trade talks may be more appropriate
33
Q

Reasons for dumping:

A
  • Excess capacity
  • Failure to find a buyer
  • Drive out domestic competition so they can dominate market
34
Q

Evaluation of using protectionism to protect domestic employment:

A

If industry is already declining, gov is just elongated the process of natural disintegration that was going to happen anyway

35
Q

Evaluation of using protectionism to improve current account deficit:

A

Expect very severe retaliation

36
Q

How does protectionism avoid over-specialisation?

A

Allows country to delve into other industries in case current industries go into decline

37
Q

Methods of protectionism:

A

1) Tariff
2) Quota
3) Subsidies to domestic producers
4) Embargo
5) Administrative barriers

38
Q

Tariff:

A

Taxes on imports/exports (usually ad valorem + on imports)

39
Q

Quota and its purpose:

A
  • Limit on number of imports for a product allowed into a country
  • Protect domestic firms
40
Q

Reasons for providing subsidies to domestic producers:

A
  • Encourage firms to grow in size
  • Lower production costs to make products more competitive
  • Can provide employment, income + tax revenue
41
Q

Embargo w/ example:

A
  • Official ban on trade or other commercial activity w/ particular country
  • Ban on import of firearms
42
Q

Administrative barrier:

A

Procedure that can inhibit trade if set in an arduous/laborious manner eg lots of paperwork

43
Q

Subsidy:

A

State grant given to firms to encourage production

44
Q

Export discipline:

A

Pushing companies to export instead of just selling domestically in order to determine which firms are actually using state protection to develop and innovate

45
Q

Why is export discipline important?

A
  • Selling within protected home market doesn’t reveal quality of goods produced
  • Can only be observed in highly competitive international environments
46
Q

What is the impact of protectionism on producers?

A

Producers gain an advantage over foreign competitors

47
Q

What is the impact of protectionism on consumers?

A
  • Embargoes and quotes limit choice
  • Tariffs make goods more expensive
48
Q

What is the impact of protectionism on workers?

A
  • Higher job security if they receive protection benefit
  • More unemployment if import focused firms go out of business/need to lower production costs
49
Q

What is the impact of protectionism on govs?

A
  • Greater revenue
  • Increased gov spending as well
50
Q

Disadvantages of protectionist measures:

A
51
Q

What 2 assumptions are made in tariff diagrams?

A

1) Domestic producers are price-makers in their home markets
2) Every producer is a price-taker in international market

52
Q

Autarky:

A

Policy of national self-sufficiency and non-reliance on imports/economic aid

53
Q

Why is world supply perfectly elastic?

A

Global economy are price-makers

54
Q

Why is price of world supply lower than price of domestic economy?

A

They have comparative advantage

55
Q

Why does quantity supplied decrease from Q1 to Q2 on free trade diagram?

A
  • Suppliers in domestic economy face fall in price from P1 to Pw
  • Not all domestic producers can afford this price reduction and they leave the market
  • Hence, quantity falls from Q1 to Q2
56
Q

Why does quantity demanded increase on free trade diagram?

A

Price is lower (Pw)

Economics Y2 (8 decks)

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