The Global Economy I

Question 1

What are the benefits of Globalisation for the economy?

Answer 1

1. Opportunities for UK businesses to trade and invest overseas
2. Access to cheaper goods and services from emerging market countries - leading to higher real income
3. Opportunities to live, study and travel overseas
4. Bigger export markets - chance to exploit economies of scale
5. More intense competition which drives innovation and economic efficiency
6. Globalisation has lifted hundreds of people out of absolute poverty around the world
7. the emergence of new consumers worldwide
8. falling cost and rising speed of global communications and transport has helped to bring people closer together

Question 2

What are the drawbacks of Globalisation for UK economy?

Answer 2

1. Risks of increase in structural unemployment in industries that lose demand to lower-cost competition from overseas
2. Globalisation may lead to rising income and wealth inequality
3. Increase in global trade/output has an environmental effect and increased CO2 emissions
4. Globalisation of brands perhaps a loss of cultural diversity
5. UK government has less control - economy may become more vulnerable to external shocks
6. Surge in inward migration of labour has brought economic and social tensions
7. Globalisation contributed to the sharp fall in interest rates and widening trade imbalances that were part of the root cause of the credit crunch

Question 3

When is protectionism justified?

Answer 3

1. Infant industry argument
2. Protect against ‘dumping’
3. Protect domestic employment
4. protect against unfair low cost labour abroad
5. protect product standards
6. to raise government revenue
7. improve current account deficit
8. to avoid risk of over-specialisation

Question 4

What are the main methods of trade barriers?

Answer 4

1. tariffs
2. quotas
3. voluntary export restraint agreement
4. embargoes
5. subsidies to encourage domestic production
6. export subsidies
7. import licensing system
8. exchange controls

Question 5

What drives globalisation?

Answer 5

Rising Living standards
Less protectionism
lower transport costs
digital communication
market liberalisation
diverging consumer cultures

Question 6

what is a comparative advantage?

Answer 6

when a country has a relative opportunity cost of production that is lower than another country and a country is relatively more efficient than another.

Question 7

what is an absolute advantage?

Answer 7

which country makes more of a product