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Economics > Theme 4 > Flashcards

Theme 4 Flashcards

1
Q

Define absolute advantage

A

Being able to produce more of a good than another country

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2
Q

Define comparative advantage

A

Being able produce a good at a lower opportunity cost than another country.

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3
Q

State the roles of financial markets

A
  1. facilitate saving
  2. facilitate lending
  3. facilitate exchange
  4. provide market equity
  5. provide forward markets
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4
Q

What is meant by equity?

A

Equity is when a firm sells a percentage of their company to investors in the form of shares.

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5
Q

What is meant by a forward contract?

A

A forward contract fixes the price and date of a future transaction now, so that you know exactly how much you will pay in the future.

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6
Q

Define quantitative easing

A

Quantitative easing occurs when the central bank buys financial assets (like government bonds) from highstreet banks.

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7
Q

In what way is the role of central banks different to the role of normal banks?

A

Central banks lend money to other highstreet banks like Natwest and HSBC. They don’t lend to individual consumers. They also don’t lend to small businesses.

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8
Q

What is the theory of comparative advantage?

A

If countries specialise in the production of the goods in which they have a comparative advantage, global output will increase.

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9
Q

What are the three assumptions of the theory of comparative advantage?

A
  1. Average cost of production is constant
  2. There are no trade barriers
  3. There are no transport costs.
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10
Q

What are the three limitations of the theory of comparative advantage?

A
  1. Increased specialisation might result in rising average cost caused by diseconomies of scale.
  2. Trade barriers might distort the theory of comparative advantage.
  3. Transport costs might distort the theory of comparative advantage.
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11
Q

Define tariff

A

a tariff is a tax imposed by one country on the goods and services imported from another country to influence it, raise revenues or protect competitive advantage.

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12
Q

What are the disadvantages of specialisation and trade?

A
  • Benefits are based on unrealistic assumptions
  • May lead to over dependence on imports and exports
  • Can cause demotivation which will decrease productivity and increase prices.
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13
Q

What are the advantages of specialisation and trade?

A
  • Leads to an increase in global output and living standards
  • May create economies of scale
  • Can lead to lower prices and more choice for consumers
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14
Q

Define globalisation

A

Increased integration of different economies around the world.

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15
Q

What is meant by Foreign Direct Investment

A

An investment made by a firm in one country into a firm in another country, to gain control over the foreign firm.

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16
Q

What is a Transnational Corporation

A

A transnational corporation is a company that operates in two or more countries.

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17
Q

What are the 5 Characteristics of Globalisation

A

An increase in international movement of labour

An increase in international movement of financial capital

An increase in specialisation

An increase in international trade

An increase in trade-to-GDP ratios.

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18
Q

Define Containerisation

A

An efficient and relatively low cost system of transport that uses a common size of steel container to transport goods.

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19
Q

What is Trade Liberalisation

A

The reduction and removal of trade barriers.

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20
Q

What are the 4 causes of globalisation

A

Improvements in transport
Improvements in IT
Containerisation
Trade liberalisation

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21
Q

What is meant by transfer pricing?

A

Transferring profits within a Transnational Corporation in order to reduce corporation tax paid

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22
Q

What Impact has Globalisation had on Individual Countries?

(pro and cons)

A

Globalisation has led to an increase in living standards but also an increase in overdependence.

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23
Q

What Impact has Globalisation had on Governments?

(pro and cons)

A

Globalisation has led to an increase in tax revenue but also an increase in transfer pricing.

24
Q

What Impact has Globalisation had on Producers?

(pro and cons)

A

Globalisation has reduced costs through relocation but it has also increased barriers to entry.

25
Q

What Impact has Globalisation had on Consumers?

(pro and cons)

A

Globalisation has led to an increase consumer choice and lower prices but it has arguably reduced happiness.

26
Q

What Impact has Globalisation had on Workers?

(pro and cons)

A

Globalisation has led to an increase in international job opportunities but increased structural unemployment.

27
Q

What Impact has Globalisation had on the environment?

(pro and cons)

A

Globalisation has increased international cooperation to fight climate change but it has increased global warming.

28
Q

Terms of Trade Formula

A

index of export prices / index of import prices x 100

29
Q

What does an Improvement in Terms of Trade mean?

A

An improvement in the terms of trade means that there has either been an increase in the index of export prices or a decrease in the index of import prices.

30
Q

What does a Deterioration in Terms of Trade mean?

A

A deterioration in the terms of trade means that there has either been a decrease in the index of export prices or an increase in the index of import prices.

31
Q

What is the World Trade Organisation

A

An organisation of 164 countries that regulates world trade.

32
Q

What are the two functions of the World Trade Organisation?

A

To organise rounds of talks to negotiate trade deals and to settle trade disputes.

33
Q

What is the Balance of Payments

A

A record of payments between one country and the rest of the world.

34
Q

What are the two main components of the Balance of Payments?

A

The Balance of Payments is made up of the Current Account and the Financial & Capital Account.

35
Q

What are the components of the Current Account?

A

trade in goods
trade in services
investment income
current transfers

36
Q

What impact does the price of raw materials have on the terms of trade?

A

An increase in raw material prices will deteriorate the terms of trade for countries who import raw materials and improve the terms of trade for countries who export raw materials.

37
Q

What impact does tariffs have on the terms of trade?

A

An increase in tariffs will deteriorate the terms of trade and a decrease in tariffs will improve the terms of trade.

38
Q

What impact does exchange rates have on the terms of trade?

A

An exchange rate depreciation will deteriorate the terms of trade and an appreciation will improve the terms of trade.

39
Q

What impact does inflation rates have on the terms of trade?

A

A low inflation rate relative to trading partners will deteriorate the terms of trade and a high inflation rate relative to trading partners will improve the terms of trade.

40
Q

What is a trade barrier?

A

A trade barrier is a restriction placed by the government on the import of a foreign good.

41
Q

What is a Quota

A

A strict limit on the quantity of imports

42
Q

How does a Subsidy to Domestic Producers impact imports?

A

Subsidies are grants given to domestic producers by the government in order to encourage supply and reduce price. This will decrease demand for imports.

43
Q

What are Non-Tariff Barriers

A

Restrict free trade by setting rules and regulations for imports to follow.

44
Q

Provide some examples of Non-Tariff Barriers

A

Health and safety regulations, environmental regulations and labelling.

45
Q

What is predatory pricing?

A

Predatory pricing is when a firm aggressively cuts prices below average variable costs in order to force competitors out of the market.

46
Q

Define speculation

A

the action in which a person tries to predict what will happen to the price of an asset and buys/sells in order to try and make a profit.

47
Q

Define FDI

A

Foreign Direct Investment is the taking of control of a company in one country by a company based in another country

48
Q

Define cyclical deficit

A
49
Q

Define intergenerational theft

A
50
Q

Define sovereign debt crisis

A
51
Q

Define redistribution of Income

A
52
Q

Define crowding out

A
53
Q

What are tax receipts

A
54
Q

What does the Phillips Curve show

A
55
Q
A
56
Q
A

Economics (9 decks)

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