theme 4 Flashcards
what is an emerging market? + pros
a market which endures rapid growth but also with a lot of risk.
+ likely to grow quicker than more mature markets.
therefore, a business should be able to increase profits and dividends
implications of economic growth for individuals and businesses?
- trade opportunities:
when an economy is growing. consumption may also grow which is good for firms looking to invest or sell products
thus, disposable income is likely to also be rising. which will allow individuals to have more money to spend, increasing demand. - employment patterns: unemployment is an indictor to not export within that country but can find a a larger number of labour workers there
indicators of growth?
- GDP
- literacy
- health
- hdi
what is GDP?
measure of economic activity ( goods & services produced in a year divided by no. people in country)
functions as a scorecard on a country’s economic health
effect of growing economy on GDP?
growing: means people spend more, more jobs are created, more tax is paid and workers get better pay rises.
how can GDP be measured?
- output: The total value of the goods and services produced by all sectors of the economy
- expenditure: The value of goods and services bought by households and by government, investment in machinery and buildings
- income: The value of the income generated, mostly in terms of profits and wages.
human development index (hdi)?
collection of stats that are combined into an index, ranking countries according to their rankable value:
- life expectancy
- mean years of schooling
- gross national income per capita (wealth)
purchasing power parity?
measure of real growth that uses the price of purchasing standardised basket of goods and services in order to compare prices economies
what are exports / imports?
exports: goods/services that a firm produces in its home market, but sells in a foreign market
imports: goods/services that are brought into one country from another
use of trade barriers? +eg
used to try to limit the importation of goods.
eg:
tariffs: taxes that are imposed on imports
what are non tariff barriers?
include practises such as:
- giving subsidies to local firms
- numerical limits (quotas) on imports and creating rules ab how much of a product must be made in the country or in what way
what is foreign direct investment?
investing by setting up operations or buying assets in businesses in another country
what is division of labour?
different workers specialising in different productive activities
what is specialisation?
a production strategy where a business focuses on a limited scope of products or services.
results in greater efficiency, allowing for goods / services to be produced at a lower cost per unit.
what is globalisation?
the growing integration of the world’s economies
factors contributing to globalisation?
- reduction of international trade barriers / trade liberalisation
- political changes
- reduced cost of transport & communication
- increased significance of global companies
- migration
- increased investment flows
- growth of global labour force
- structural change
reduction of international trade barriers / trade liberalisation?
an increasing number of countries around the world have opened up their economies.
this means they have allowed trade to flow w out any barriers.
increased significance of global companies?
a growing number of large firms have developed significant business interest overseas.
they sell goods / services into global markets and have production plants and other operating facilities all over the world (transnational / mncs)
how does migration contribute to globalisation?
- they often import their cultures into their new environment
- provide supply of low cost labour
- portion of money earnt by migrants is sent back to place of birth which generates demand and econ activity is spread around the globe
- can be highly skilled and fill skills gap, this making big contributions to businesses
what are growth rates?
the rate at which a nation’s gross domestic product (GDP) changes/grows from one year to another
what are emerging economies?
An economy with incomes that are growing but are still quite low.
what are bric economies?
The economies of Brazil, Russia, India and China, which are at a similar stage of economic development.
exchange rates?
The price of one currency in terms of another
trade opps from fdi?
- Opens up new markets which increases wealth in countries
- Access to raw materials
- Greater movement of goods and services between countries
- Opportunities for cheaper production and therefore cheaper unit costs
- Trade opportunities will arise in new markets leading to an increase in demand and increased revenue and profit.
employment patterns and impact on consumers?
-Increased economic growth leads to improvements in the standard of living for consumers
- Increased incomes allow people to spend more on necessities at lower levels of incomes and more on luxuries at higher levels of income
- Increased incomes allow workers more free time and the ability to retire, and enjoy the quality of their life, at an earlier age.
what is currency appreciation & depreciation?
a- An increase in the value of one currency in terms of another
d- The loss of value of a country’s currency with respect to one or more foreign reference currencies.
factors affecting exports & imports?
- The impact of exchange rates
- Price elasticity
- The state of the world economy
impact of exchange rates?
An increase in exports to the US will increase the demand for the £ as the Americans have to pay for these goods and services in £s.
Due to an increase in demand for the £, the price of the £ will rise and this is called an appreciation.
(opposite if demand for £ declines)
NON-PRICE FACTORS AFFECTING EXPORTS AND IMPORTS?
- Real GDP of other countries increases
- Changes in taste and fashion
- Price inelastic exports are likely to see a fall in volume sales but an increase in total revenue
- Productive capacity increases allowing for greater sales of a product
- Product differentiation leads to greater demand for products.
competitive advantage?
advantage over the competitors in the long term, gained by offering consumers:
- greater value
- lower prices
- providing greater benefits and service
specialisation?
When a business concentrates on a product or task and in many cases means producing only a small number of products.
how specialisation and comp advantage link?
Specialisation is likely to lead to increased output per worker (productivity) as the workforce have a better understanding of their job role.
This will help provide a competitive advantage as businesses improve the quality of their products.
impact of fdi and strats?
FDI can be used by businesses to achieve the aim of growth. Countries try to attract FDI using strategies such as:
- lower levels of corporation tax
- subsidies for the building of factories
- investment in infrastructure such as roads, ports and airports.
trade liberalisation?
Includes the removal or reduction of tariff obstacles such as duties and surcharges and non-tariff obstacles such as licensing rules, quotas and other requirements.
transnational corporation?
business that is register and operates in more than one country at a time but selling the same products.
factors for international trade increasing?
Reduction of international trade barriers/trade liberalisation
Reduced cost of transport and communication
Increased significance of transnational corporations
Increased investment flows
Migration within and between economies
Growth of the global labour force
Structural Change
adv / dis of trade liberalisation?
adv:
- increased economies of scale and greater competition, which can drive down costs and improve quality.
dis:
- potential loss of local businesses due to increased competition, infant industries could be lost to foreign competitors, and the vulnerability of some industries dumping by overseas rivals.
Dumping occurs when a country has excess stock and so it sells below cost on global markets, causing other producers to become unprofitable.
protectionism?
any attempt by a country, trade bloc or region to impose restrictions on the import of goods and services.
tariffs?
a tax or duty that raises the price of imported products.
dumping?
Over-production in developed countries may be released into the markets of developing nations which undercuts domestic prices and domestic producers may be forced to leave the market.
balance of payments?
Exports - Imports. This explains the financial relationshio between the UK and the rest of the world.
why may a country use protectionist measures?
- trade imbalances
- protect jobs
- protect politically sensitive industries such as shipbuilding.
adv / dis of imposing tariffs?
adv:
- promoting local industries and products by pricing them below the price of the imported good
- increasing government revenue to spend on public services
- discouraging dumping or products and allowing infant industries to flourish
dis:
- discouraging trade
- reducing consumer choice, pushing up prices and restricting competition.
- The latter may result in home producers becoming inefficient and ultimately may slow the growth of the economy.
import quotas?
A type of protectionist measure on trade that sets a restriction on the physical limit on quantity of a good that can be imported into a country in a given period of time.
adv / dis of import quotas?
adv:
- Keeping the volume of imports unchanged even when demand for imported products increases
- Local jobs may be created or protected, leading to a greater tax revenue
- More flexible than tariffs
dis:
- Tend to distort international trade as they restrict the amount of imports
- Restricts competition
- No tax revenue from imports
- In some countries, there is a risk of corruption from bribes by companies wanting to gain access to the market.
gov legislation + adv & dis?
legislation imposed by the government in order to both protect consumers and restrict imports.
Benefits of government legislation is that it allows domestic firms to flourish in the market, but it may provoke retaliation from another country is the ban is seen as unfair.
domestic subsidies + adv & dis?
are payments to encourage domestic production by lowering their production costs and improve competitiveness.
adv:
- The protection of local jobs and industries
- The reduction of costs to make businesses more competitive in the global market.
dis:
- Subsidies encourage inefficiency
- May result in retaliation due to it being seen as a protectionist policy.
embargoes + adv & dis?
A total ban on imported goods.
what are trading blocs?
group of countries that signed regional trade agreement to lower / eliminate tariffs
Preferential trade areas?
certain types of products from participating countries has lower tariff rates
Free trade area?
region where members removes trade barriers but they keep some barriers
Custom union?
union where members remove all trade barriers and adopt common set of barriers on non-member countries
Common market?
goods, labour and capital moves freely with members where non-tariffs barriers are removed
Single market?
almost all barriers are removed and common laws to make movement easier
economic union?
type of trade bloc involving both a customs union and a common market
also uses common currency
impact of joining trading bloc? + examples
increases trade liberalisation and leads to trade creation
(businesses are able to enter new markets which can lead to an increase in sales volume and sales revenue)
- EU
- association of southeast asian nations (ASEAN)
- north american free trade agreement (NAFTA)
impact of free trade areas?
lower business costs, increase market size and help businesses to generate economies of scale
impact of businesses outside the trading bloc?
- face higher costs from protectionist measures such as tariffs and trying to meet legal requirements inside the trading bloc
- less competitive when trying to sell goods to member countries within the bloc
- likely to decrease their sales volume to countries within the bloc
