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Economics Paper 2 > theme 4: international economics > Flashcards

theme 4: international economics Flashcards

1
Q

globalisation meaning

A

when the world economies become more interdependent, interconnected and integrated

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2
Q

factors contributing to globilisation

A

reduce transport cost
containerisation- cheaper to ship goods across the world
technology more affordable
resources more available
free trade
less protectionism
TNCs get cheaper labour so boost output

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3
Q

globalisation impact on consumers

A

wider range of goods
differentiated goods higher
quality goods
cultural diversification
change in taste and fashion
general increase in world GDP so less absolute poverty
SR- lower price (comparative advantage)
LR- inflanitory as there is more demand for all goods

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4
Q

globalisation impact on workers pro

A

free movement of factors of production
increase in AD which means more job opportunities
TNC’s provide work and improve human capital through training

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5
Q

globalisation impact workers con

A

structural unemployment as manufacturing goes to other countries with comparative advantage
more inequality as high skilled labour gets paid more
sweatshops= exploitation of worker
may lead to global monopolies decreasing choice
lower job security

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6
Q

globalisation impact on producers pro

A

source from more countries
sell to more countries
comparative advantage
external economies of scale
increase factors of production
dynamic efficiency and innovation

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7
Q

globalisation impact on producers con

A

firms which cannot compete internationally lose out
international companies can take over domestic companies
brain drain

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8
Q

globalisation impact on government pro

A

higher tax revenue
more global wealth (more assets)
faster economic growth
allows developing countries to borrow money

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9
Q

globalisation impact on government con

A

corruption due to TNC’s (regulatory capture)
loss of sovereignty due to treaties
interdependence greater vulnerability to economic shock

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10
Q

globalisation impact on the environment

A

more concern due to education
pollution due to production and transport
deforestation, water waste, land degradation, environmental dumping

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11
Q

free trade area meaning

A

where 2 or more countries agree to reduce/ eliminate trade barriers

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12
Q

custom union meaning

A

removal of trade barriers and common external tariffs against non members

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13
Q

common market meaning

A

no barriers to trade goods, services, capital and labour

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14
Q

monetary union meaning

A

2 or more countries with a single currency

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15
Q

pro of joining the Euro

A

boosts trade + investment
boosts tourism
financial support + political stability
reduced vulnerability to external shock

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16
Q

con of joining the euro

A

exposure to euro zone monetary problems
may have to contribute to bailout of other countries
lose trade partners
structural reforms
structural unemployment

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17
Q

pro of staying in EU

A

free movement of labour and capital
fill in labour shortages
trade creation
increase FDI
more consumer choice
lower price for raw materials

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18
Q

con of staying in EU

A

loss of sovereignty
uncontrolled immigration
unable to trade freely
have to follow EU laws
give money to the EU so lower gov revenue

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19
Q

pro of trading blocs

A

focus on comparative advantage
increase specialization so EoS
larger customer market
competition encourages innovation
consumers have a higher choice

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20
Q

con of trading blocs

A

distorts world trade
trade diversion- higher priced goods
trade disputes
developed countries attract skilled labour- brain drain- regional decline
less sovereignty

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21
Q

reasons for restriction

A

protect new domestic firms which are not able to compete globally
protects against structural unemployment
protect domestic producers
prevents over specializations so less susceptible to economic shock
tax revenue from tariffs

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22
Q

tariffs meaning

A

tax placed on imported goods

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23
Q

impact of tariffs

A

domestic producers protected against lower prices
decrease consumer surplus
other countries may put tariffs on X
decrease demand of M so improved CA

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24
Q

quota meaning

A

limits placed on quantity imported allowed into a country
creates artificial scarcity

25
Q

impacts of quota on domestic producer

A

increase price of the good so more profits
higher cost of production if they have to import raw materials or components

26
Q

impacts of quota on consumers

A

higher price
higher employment domestically

27
Q

impacts of quota on gov

A

improved CA
rise in GDP
no tax revenue from tariff

28
Q

what do domestic subsidies o producers do

A

lower cost of production
higher output
revenue increase
profit increase
develop dependence

29
Q

comparative advantage meaning

A

when countries can produce at a lower opportunity cost than another country

30
Q

absolute advantage meaning

A

country produces at a lower cost than another country

31
Q

what can absolute and comparative advantage lead to

A

specialization to produce a good or service

32
Q

assumptions with comparative advantage

A

no transport cost
costs are constant and no economises of scale
goods are homogeneous
factors of production are perfectly mobile (no tariffs)

33
Q

pro of specialization of trade

A

increase in world output
economies of scale
greater choice for consumers
greater competition so innovation

34
Q

disadvantage of specilisation of trade

A

interdependence- susceptible to economic shock
structural unemployment if foreign firms are more efficient
environment suffers as increase demand

35
Q

geographical pattern of trade meaning

A

the countries with which a nation trades with

36
Q

factors influencing patterns of trade

A

comparative advantage
emerging economies - X led growth
trading blocs and agreements
relative exchange rate

37
Q

terms of trade meaning

A

price of X / price of M

quantity of exports needed to be sold to be able to buy a given level of imports

38
Q

factors influencing tot

A

exchange rates
inflation
changes in D / S of imports / exports
improvement in the quality = fall in the price of X / M
change in incomes

39
Q

impacts caused by tot

A

improvement:
fall i GDP = rise in unemployment = X are less price competitive
if PED inelastic X then tot improves and GDP rises = rise in employment as more goods are demanded

living standards rise as M brought for cheaper

changes in CA

Inflation- deterioration of tot means that x is cheaper so then more is consumed so more AD

40
Q

balance of payment meaning

A

record of all economic transactions made between consumers, firms and gov from 1 county with other countries

made of:
current account
capital account
financial account

41
Q

current account meaning

A

record of countries quantity imported and exported

payments made to foreign investors and transfers

42
Q

what makes up the CA

A

balance of trade in goods- imported and exported goods

balance of trade in services- imported and exported services

net primary income- interest, profits, dividends and remittances

net secondary income- aid, EU contributions

43
Q

Capital account meaning

A

measures transfers in assets and liabilities

44
Q

financial account meaning

A

transfers of the ownership of financial assets and liabilities between UK residents and non-residence

(financial transfers)

45
Q

causes of a current account deficite

A

poor tot

poor price and non price competition (high inflation pushing up prices of X. lack of R&D so poor quality )

strong exchange rate causing higher price of X

recession in trading partners (expensive uk X)

volatile global prices changes D

changes in demand

lack of investment = low productivity

corruption

46
Q

consequences of a CA deficite

A

loss of AD

currency depreciation- low D for X = low D for £

supply side weakness

loss of FDI- capital flight

47
Q

causes o CA surplus

A

a lot of natural resources

diversification of X

strong tot

price competitiveness and non price competitiveness

high investment = high productivity

48
Q

consequences of a CA surplus

A

more foreign assets (diversification)

strong exchange rate

higher employment due to high demand of goods

49
Q

exchange rate meaning

A

value of one currency compared to another currency or a basket of currencies

50
Q

free floating currency meaning

A

when the value of a currency is set by supply and demand of the currency

51
Q

pro of free floating

A

freedom to set monetary policy to manage inflation

correct CA deficit

reduces need to hold foreign currency reserves

less risk to be under or over valued

insulates from shocks

52
Q

ev for free floating

A

can be volatile
lack of confidence causes less investment
not guarantied to improve BoE

53
Q

fixed exchange rate meaning

A

when gov sets their currencies value against other currencies or basket of currencies

54
Q

pro of fixed exchange rate

A

avoids currency fluctuations
more confidence so investment
control inflation as no sudden changes in price
less speculation

55
Q

ev for fixed exchange rate

A

cannot use IR for objectives
developing countries don’t have enough foreign currencies to have fixed ER
under value currency to make X more price competitive but can cause tariffs
under valuing causes cost push inflation

56
Q

international competitiveness meaning

A

ability of a nation to compete successfully overseas

57
Q

factors influencing international competitiveness

A

ability to attract FDI
ability to attract entrepreneurs so new ideas and innovation
ability to attract skilled labour
unit labour cost - cost of labour per unit of output
exchange rate
quality if human capital
flexibility of labour- low immobilities
economic stability
tax
regulation
rate of innovation
IR

58
Q

significance of international competitiveness

A

more X
increase AD
attract FDI
higher emolyment

Economics Paper 2 (9 decks)

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