Theme 3 - The Global Economy Flashcards
1
Q
Which two Asian countries have become leading economies thanks to globalisation?
A
India and China
2
Q
How has the UK’s economy changed since globalisation?
A
It has shifted from producing goods to offering services (Secondary Sector - Tertiary Sector)
3
Q
What is free trade?
A
When countries trade with no protectionist measures such as tariffs, quotas and embargoes
4
Q
Why have developing economies gained an advantage in the production of goods?
A
They have fewer regulations and lower labour costs, meaning it is cheaper to produce there, hence lower prices
5
Q
Define absolute advantage
A
This is when country A can produce more units than country B with the same factor inputs
6
Q
Define comparative advantage
A
This is when country A can produce the same number of units as country B but with a lower opportunity cost
7
Q
List a few advantages of specialisation
A
- Greater world output
- Higher standard of living for developing economies
- Increased supply of goods to choose from
8
Q
List a few advantages of free trade
A
- Greater economic growth
- Greater efficiency due to competitive markets
- Exploit economies of scale, which brings lower costs and therefore lower prices
9
Q
What is Foreign Direct Investment?
A
This is the flow of capital from one company to another
10
Q
Why is FDI good for a developing economy?
A
It creates jobs and encourages investment in technology
11
Q
What is trade creation?
A
When a country consumes more imports from a low cost producer
12
Q
What happens to countries that aren’t part of a specific trading bloc?
A
They will face tariffs and other protectionist measures when trying to trade with a member of another trading bloc
13
Q
How do tariffs affect imports?
A
They reduce imports, because the price of imports become more expensive due to the introduction of a tax
14
Q
What is a quota?
A
A limit on the quantity of imports allowed into a country
15
Q
How do quotas affect consumer surplus?
A
They reduce consumer surplus, because the price of these imports increase due to the restriction on the quantity of imports
16
Q
What are voluntary export restraints?
A
This is an agreement between two countries to limit the amount of goods they export to each other
17
Q
Why does protectionism usually lead to higher prices?
A
Protectionist measures distort the market and reduce the competition, so domestic firms have no incentive to cut costs and reduce prices
18
Q
Why are tariffs regressive?
A
They impact low-income families the most
19
Q
What does the G20 comprise of?
A
The 20 largest economies in the world
20
Q
What is the role of the World Trade Organisation (WTO)?
A
To promote free trade
21
Q
What is the role of the World Bank and the IMF?
A
To ensure financial and economic stability
22
Q
What is the difference between the World Bank and the IMF?
A
The World Bank can loan funds to member countries in order to reduce poverty and promote economic stability, whereas the IMF promotes monetary cooperation between member nations
23
Q
What is a bilateral trade agreement?
A
An agreement between 2 countries to favour each other’s goods and services
24
Q
What is the Eurozone an example of?
A
A monetary union
25
What does being a member of a monetary union entail?
All members share the same currency and follow the same monetary policies
26
List a few advantages of a monetary union
1. Currency is less prone to speculative shocks, reducing uncertainty
2. Less red tape when travelling between member countries, thus increasing efficiency
27
What is the major disadvantage of being part of a monetary union?
Members have to follow the same monetary policies, so in times of economic distress they cannot alter them at the expense of other countries
28
Which year did China become the world's second largest economy?
2011
29
What factors contributed to China's growth in the 1990's?
Mass privatisation (which increased productivity) and the increase in foreign direct investment
30
Describe the difference between push and pull factors?
Push factors deter firms from entering new markets, whereas pull factors are those that attract a firm to enter a market
31
Would a saturated market be a push or a pull factor?
A push factor
32
Would an emerging economy be a push or pull factor, and why?
A pull factor as emerging economies have a high scope for potential firm growth
33
Define offshoring?
This is the process of having part/all of a firm's services shifted abroad
34
How could a firm benefit from offshoring?
They can take advantage of the low labour costs in other countries
35
What is outsourcing?
This occurs when firms get their goods from a supplier abroad
36
How does political stability affect the potential growth of a firm?
If a country faces lots of corruption it will be harder for a firm to set up a long-term plan in that country and be able to make a profit
37
Would red tape be a push or a pull factor?
A push factor
38
If a firm is a net importer of raw materials, how would a depreciation in their currency affect the prices of their goods
A depreciation causes imports to be more expensive, thus raising their costs of production which they would pass on to consumers in the form of higher prices
39
How would government subsidies affect a firm?
It would lower their average cost of production, thus improving their profit margin per unit of output sold
40
Describe the idea of glocalisation?
This is when firms have the intention of distributing their goods/services on a global scale, but also ensure they meet the demands of their local consumers
41
What is ethnocentrism?
This is the idea of comparing other cultures with the qualities of the domestic culture
42
How would ethnocentric consumers be beneficial to domestic firms?
These type of consumers favour their domestic culture over any other, meaning they are less likely to buy from foreign firms, thus reducing competition for domestic firms
43
What is a polycentric approach to business?
This is when global firms employ people from the host country in order to get a better understanding the wants and needs from consumers in that country
44
Give one cost benefit of advocating a polycentric approach?
It is cheaper to recruit an employee from the host country, due to low labour costs (especially if the host country is a developing one)
45
Give one disadvantage of a firm operating in a different country with a different native language?
This increases the chances of inaccurate translation, which can lower the quality of the firm's products and therefore adversely affect revenue
46
Describe the difference between mass markets and niche markets?
Mass markets address all consumers, whereas niche markets focus on a small group of consumers and a specific product
47
Which market is more likely to have a higher profit margin - mass or niche? And why?
Niche markets because these products are specialised to a specific consumer group and so firms will demand a higher price to compensate for this
48
What are MNC's?
Multinational corporations are corporations with assets in multiple foreign countries
49
How would investing in foreign countries help the people of that country?
It would create jobs for these people, which could potentially improve their quality of life
50
Why would MNC's choose to shift their production processes abroad?
To take advantage of the low cost of labour
51
How would local firms benefit from MNC's in that area?
Local firms may supply the MNC with raw materials or other goods, thus increasing their revenue
52
Briefly describe corporate social responsibility (CSR)
This is when firms ensure that their actions are beneficial to society
53
How could the presence of a MNC hinder the growth of local firms?
If local firms cannot benefit from economies of scale and provide their goods at the same price level as the MNC, they may lose revenue which will affect their scope for profit
54
How would the local economy benefit from MNC's?
MNC's would increase employment in the area, and through the multiplier effect would increase spending and lead to stronger economic growth
55
Would an increase in exports improve or damage the balance of payments?
It would improve the BoP
56
Who are stakeholders?
These are anyone with an interest in how a particular firm is run
57
What do cheap products imply about the people making those products?
That those workers are paid very little
58
Why would some countries fear trying to control MNC's?
If they impose too much regulation and red tape, the MNC may cease activities in that country, which could lead to unemployment and less economic growth
59
Why would a firm monitor its own behaviour?
They might have high ethical standards
60
What are the OECD guidelines for MNC's?
They encourage firms to adhere to the principles of human rights
61
How might self-regulation harm a firm's profit?
They may lose out in a competitive market, thus reducing their profit potential
62
How has globalisation contributed to the size of the labour force?
With ease of travel and less red tape between borders people have been able to find jobs more easily
63
Why has production shifted from developed to developing economies?
Firms can take advantage of the low labour costs in developing economies
64
Why might unemployment in developed economies increase due to globalisation?
Firms shift their production to developing economies with low labour costs, leaving people in developed economies with little scope for employment
65
What 4 factors affect the demand for labour?
1. Wage rate
2. Demand for products
3. Productivity of labour
4. Substitutes for labour
66
What is the relationship between wage rate and number of people employment?
As wage rate rises, number of people employed decreases - inversely proportional relationship
67
Why do firms employ less workers as the wage rate rises?
It may be easier for firms to invest in capital, which is cheaper and more productive than manual labour, so less workers are required
68
If workers are more productive, will their wages be high or low
High
69
If the market is unsaturated, how will this affect wages and why?
The firm is the only one in the market, so it has more bargaining power than the workers leading to lower wages
The firm is the only one in the market meaning they hold all the revenue from that industry which increases their growth and scope for future growth leading to an increase in wages
70
How is the supply of labour calculated?
Number of people who can work (at the current wage rate) x Number of hours they can work
71
Describe the relationship between wage rate and the number of people willing to work
As wage rates increase, the number of people willing to work increases - proportional relationship
72
Why do firms fear trade unions?
Trade unions have the power to negotiate higher wages and better working conditions for employees, leading to higher costs for firms
73
If taxes are too high, how will this affect the supply of labour?
This will reduce the supply of labour because less people are willing to work knowing a higher proportion of their income will be taken by taxes
74
What happens if trade unions push wages too high?
It will lead to firms not being able to sustain their employment level leading to them cutting down on the number of workers required
75
Describe the difference between individual and collective bargaining
Individual bargaining is between an employee and employer, whereas collective bargaining is between an employer and a collective of employees
76
What is productivity bargaining?
Occurs when employees and employers meet to discuss an increase in wage rates as well as an increase in productivity
77
Do minimum wages need to be set above or below the current market price?
Above otherwise they will be ineffective
78
How will a minimum wage affect the demand for labour?
It will reduce the demand for labour
79
If the demand for labour is inelastic how will a minimum wage affect the demand level?
There will be a smaller contraction in demand than there will an increase in the supply of labour with a minimum wage
80
How would a minimum wage affect tax revenue?
It will increase tax revenues, as people are earning a higher income meaning more money will have to be paid via tax
81
How would a minimum wage affect competitiveness?
Countries would become less attractive to firms as the minimum wage will increase their costs leading to a decrease in country competitiveness
82
What is international competitiveness?
This is when firms can successfully compete overseas whilst successfully sustaining improvements in real output and living standards
83
Define absolute poverty
This is where a person lives below subsistence, unable to meet their basic needs
84
Define relative poverty
This is measuring a person's poverty relative to the country they live in
85
What are the 2 measures of poverty?
Human Poverty Index (HPI)
Lorenz curve and Gini coefficient
86
What's the difference between HPI-1 and HPI-2?
HPI-1 measures poverty in developing economies, whereas HPI-2 measures poverty in developed economies
87
What 3 factors does the HPI take into account?
Life expectancy
Education
Ability to meet basic needs
88
How does the Lorenz curve differ from the line of perfect equality?
The line of perfect equality shows a utopian economy, whereas the Lorenz curve shows a realistic relationship of income distribution
89
What does the Gini coefficient show?
It gives a numerical value showing the inequality in a country
90
What is the formula for the Gini coefficient?
Gini = A / (A+B)
91
What does a Gini coefficient of 0 indicate?
Perfect equality
92
How does economic growth differ to economic development?
Economic growth refers to an increase in GDP, whereas economic development refers to an increase in living standards and life expectancy
93
Which country has Africa received the most aid from?
China
94
How can FDI help rescue poverty?
It provides more jobs in the areas where the firms are set up, leading to the citizens having more income
95
What are microfinance schemes?
This involves borrowing small amounts of money to fund new enterprises
96
Who are the usual recipients of microloans?
People who don't have a sufficient credit score to get a loan from the banks
97
How would inequality motivate workers?
It could encourage them to work harder, be more productive and earn higher wages
98
How are monopolies linked to inequality?
Monopolies have the market power to exploit customers with high prices which will increase revenue for firms but will lead consumers with less income as a result
99
How can government intervention help reduce wealth inequality?
By charging inheritance taxes, the upper class keep less of their wealth, thus reducing the inequality gap
100
Give 1 social cost of inequality
Social unrest
101
Describe the difference between wealth and income
Wealth is a stock of assets, whereas income is money received on a periodic basis
102
What is the poverty trap?
A mechanism which forces people to remain in poverty
103
How could taxes become a poverty trap?
If taxes are too high, workers may become demotivated to work longer hours as they know they'll receive the same income after taxes are deducted
104
What is progressive tax?
When the tax rate increases as income increases (UK system)
105
How does negative income tax differ from conventional income tax?
Negative income tax is when a worker earns below a certain level, so instead of paying taxes the government gives them money
