The Global Economy Igcse Flashcards
What is an Mnc?
a multinational company is a company that operates in several parts around the world
Impacts of the Mnc
3 eco agents mnc
Consumers Firms Government Environment Mnc
impacts of Mnc on the consumer (olimono)
Adv - increase in choice, cheaper prices, increase in quality of products (short-run)
Dis - higher prices in the long run as Mnc will monopolize the market
impact of Mnc on the firms within the country (Sadia meat and mc Donalds vs jaddeds bakery)
Adv - firms, would be able to supply Mnc’s goods and services such as raw materials, parts, etc
therefore sales would increase - as a result revenue would increase, consequently profit would also increase,economies of scale for the supplying firm
Dis - negative for the firms competing with the Mnc and smaller firms would go out of business, as smaller firms can’t compete with the MNCs economies of scale
impacts of Mnc on the environment
Adv - Improve sustainability in the long run by creating
new efficient ways to produce goods and services as Mncs want to cut down costs by not paying permits, taxes, etc
Dis - High use of raw materials
pollution
more local dump
Impact of MNCs on themselves
Adv - Mncs will open a new market - more customers- increased sales - increased profit - economies of scale
Dis - Increase risk of business failure - diseconomies of scale
Impact of MNCs on the government
Adv - Receive large amounts of co-operation tax and income tax from the employees
Dis - unemployment may increase as small firms may go out of business, thus govs will have to pay unemployment benefits and spend more this will worsen the budget deficit and cause a recession in the long run
What is FDI?
Foreign Direct Investment, money invested into a country, by an organization from outside the country.
How is FDI investment done by MNCs
Buying supplies and materials from firms within the country
Paying cooperation tax to the goverment
Paying employees
Renting and buying properties
Adv and dis of FDI
Adv - Jobs created, this means income is earned and spend on local business, which would increase the GDP and lead to economic growth, these jobs could also provide children education which will lead to economic growth in the long aswell.
MNCs pay taxes
Dis - workers will be exploited as they’ll be working for long hours, in horrible conditions and low paid.
environmental damages
Globalization
Globalization is the growing interdependence of the worlds of the economy
interdependence - dependence of two or more people or things on each other.
reasons for globalization
Reduce the cost of communication
Reduce the cost of transportation
fewer tariffs and quotas
increases the significance of MNCs
International trade
International trade can cost money or be free
what are the methods of protectionism
Tariffs - a tax on imports and exports to make it make more expensive
Quota - a limit that can be set to the number of products that are imported and exported
Subsidies - money given by the goverment to local/domestic firms in order to compete with MNCs
Free Trade
free trade involves trade without tariffs and quotas and no other cost associated
Advantages & Disadvantages of free trade
Adv - goods and services become cheaper
more choice
an increase in economic growth
Dis - more competition for local firms
increase in unemployment
environmental damages
Overspecialization - countries can become dependent
on a narrow range of goods and services, thus this will increase market failure because other countries can provide lower prices
Reasons for protectionism - thedic
Prevent dumping(Quotas) - dumping, is when an Mnc sells goods and services at a lower price than the cost of making the product - this is a disadvantage as smaller firms will go out of business - Mncs monopolize the market, therefore dumping is considered bad - the gov can prevent this from happening by setting an x amount of imports coming within the country
Protecting employment (Tariffs) - smaller firms go out of business as they can’t compete with MNCs dumping - unemployment increases - Gov could use subsidies and quotas but tariffs are the most efficient way - As by imposing tariffs firms importing goods from overseas will increase there cost due to tariffs as a result firms will purchase supplies from within the country, furthermore, consumers would also purchase products from within the country as they smaller firms can now provide cheaper prices - As a result, small firms come back into business and can now employ more people- reducing unemployment
Protecting infant industries(All) - infant industries are new industries at their early-stages yet to be established - these need to be protected from MNCs as they would monopolize the market - govs could use protectionism to prevent this from happening
To gain tariff revenue - Govs can use the money generated from tariffs to spend it on healthcare, education, etc
preventing the entry of harmful goods ( Quotas )
reduce current accounts deficit ( Quotas)
what are Trading Blocs
are a group of countries situated in the same region that join together and enjoy free trade
what are Wtos
World trade organizations is an international organization that promotes free trade by persuading countries to abolish protectionism
Trade liberalization
moving towards greater free trade
Activities of a wto
trade negotiations
building membership
setting conflicts
Patterns of Wto
Increase in globalization
Increased Trade-in developed countries
better transport
better communication
Member states adv and dis
Adv - goods will be cheaper
more consumer choice
Reduces conflicts
helps developing countries grow
promotes peace - this could lower spendings on military and allow governments to spend on other parts of the economy
Dis - cost of being a member - opp cost on spending on other sectors of the economy
factors affecting the DEMAND for a currency
Demand for exports increase
An increase in interest rates
factors affecting the SUPPLY for a currency
Demand for imports increase
A decrease in interest rates
Foreign exchange market
A market where foreign currencies can be bought and sold
Spiced is bad
Stronger pound - imports cheaper - exports more expensive.
( this will mean that the current accounts will worsen as imports are greater than exports and cause a budget deficit, however, firms will be able to benefit from cheaper imports.)
wpidec is good
weaker pound - imports expensive - exports cheaper.
this will improve the current accounts as imports will decrease and imports will increase and cause a budget surplus, which could lead to an economic growth.)
appreciation
when currency increases in value ( no intervention by the gov)
deprecation
when currency decreases in value ( no intervention by the gov)
