The International Economy

Question 1

Globalisation

Answer 1

The process of growing economic integration of the worlds economies

Question 2

Main characteristics of globalisation

Answer 2

Growth of international and reduction of trade barriers
International mobility of capital and labour
An increasing power of MNCs and TNCs

Question 3

Consequences of globalisation - less developed nations

Answer 3

Exploitation of workers - low wages
Glocalisation
Forced into privatisation to qualify for IMF or world bank loans

Question 4

Consequences of globalisation - more developed countries

Answer 4

MNCs may reduce wages and living standards
Possess little capital - developed countries allocate resources to their own advantage
Dependency of trade theory
Flows to HQ in HICs

Question 5

Globalisation of the service sector

Answer 5

Financial services from UK shift to India e.g. call centres

Question 6

Factors encouraging overseas location of call centres

Answer 6

Low wage costs
Reliable cheap telecommunications
24 shift employment overcomes time zone problem
English is the worlds business langauage

Question 7

Absolute advantage

Answer 7

A country has an absolute advantage if it can produce more of a good than other countries from the same amount of resourfes

Question 8

Comparative advantage

Answer 8

Measured in the terms of opportunity cost
The country with least has the comparative advantage

Question 9

advantages of free trade

Answer 9

Lower prices due to reduced market contestability
Specialisation and economies of scale causing lower costs and prices
Increased competitiveness
Growth of exports industries
jobs and revenue
inflows of info increasing human capital

Question 10

Disadvantages of free trade

Answer 10

Possible structural employment
Developing countries will struggle to have diverse economies

Question 11

Assumptions of comparative advantage

Answer 11

Fixed and immobile factors of production
Constant returns to scale
Demand and cost conditions are stable
no import controls

Question 12

Justifications of import controls

Answer 12

Protecting infant industries growing in developed nations
Preventing unnecessary deindustrialisation
Preventing exploitation by a foreign based monopoly

Question 13

Types of import controls

Answer 13

Quotas
Tariffs
Export subsidise

Question 14

causes of globalisation

Answer 14

technological advancement
growth and increase in number of TNCs
communication improvements

Question 15

advantages of MNCs

Answer 15

employment and training
transfer of skills
boosting gDP through spending
incentive to domestic firms
consumer nd business choice
significant tax revenues from profitable

Question 16

how do MNCS contribute to globalisation

Answer 16

FDI boosts AD
global financial flows
interconnectedness
flow of physical goods through exporting and importing
flows of info

Question 17

impact of trade on allocative efficiency

Answer 17

comp from lower costs drives down market prices and reduces supernormal prices

Question 18

impact of trade on productive efficiency

Answer 18

specialising and selling in larger markets increases returns to scale (Eos) lower LRAC

Question 19

impact of trade on dynamic efficiency

Answer 19

open economies may see more innovative firms which invest in r+d and in human capital to improve productivity

Question 20

dynamic gains from trade

Answer 20

diffusion of knowledge and technology
Eos
comp and inno
productive firms
cheaper and more productive input goods into countries supply chain

Question 21

importance of trade to developing countries

Answer 21

a source of foreign currency to balance payments (trade surplus = greater reserves)
financing imports e.g. capital equipment
rising employment
injecting demand into circulation flow

Question 22

costs of trade

Answer 22

air and sea pollution
neg externalities
risk of structural unemployment
rising inequality - uneven gains from trade
pressure on wages and working conditions
risk of global external shocks