Theme 4.1 - International economics Flashcards
4.1.1 - What is globalisation?
Globalisation has many definitions
- The increasing convergence and interconnectivity of local markets into an emerging global market
OR
- The increasing integration of the worlds local, regional and national economies into a single international market
4.1.1 - What are the key drivers of globalisation?
The internet
Advances in tech and transport/infrastructure - IT and communication
Space time compression
Containerisation
Improvements in transport, infrastructure and operations
Trade/trade liberalisation and reduced protectionism
TNCs
International financial markets
4.1.1 - What are impacts of globalisation and global companies on consumers?
Given choice
Lower prices
In some cases a rise in prices
Loss of culture
4.1.1 - What are impacts of globalisation and global companies on workers?
Some gain while others loss eg the global shift of the car industry
Increased migration
Fall in wages for low skilled workers
Increase for high skilled workers
4.1.1 - What are the characteristics of globalisation?
Movement towards free trade of goods and services, free movement of labour and capital and free interchange of technology and intellectual capital
4.1.1 - What are the impacts of globalisation and global companies on producers and workers?
Producers
- source products from more countries, reduced risk, exploit comparative advantage larger market = increase profit, unable to compete internationally will lose out
Workers - gain or loss of employment for some, increased migration, increased inequality, increased training and new jobs, sweatshops will see poor countries and low wages
4.1.1 - What are the impacts of globalisation and global companies on governments?
Increase investment within countries
World class management techniques and tech
Political instability can be caused
Comparative cost advantages will change over time
4.1.1 - What are the impacts of globalisation and global companies on the environment?
Increase in demand for raw materials - land scarring due to mining etc
Increase emissions
Climate change can be tackled
4.1.2 - What is absolute advantage and the formula for average cost?
When an economy can produce a product at a lower AVERAGE COST than another
Average cost = total cost/no. of products
4.1.2 - What is comparative advantage and the formula for opportunity cost?
The ability of a country to produce a particular good/service at a lower opportunity cost than another
Opportunity cost= total revenue/total profit
4.1.2 - What are the assumptions of the theory of comparative advantage?
No transport costs Costs are constant No economies of scale Only two economies producing two goods Traded goods are identical (homogeneous) Factors of production are assumed to be perfectly mobile No tariffs or other trade barriers Perfect knowledge when in fact there may be asymmetric information
4.1.2 What is specialisation?
When an economic unit focuses on a narrow range of products, thereby developing a comparative cost advantage in producing these products over time
4.1.2 - What are the advantages and disadvantages of specialisation and trade?
Advs:
Economies of scale to max = cost reduced
Choice for consumers = consumer welfare increases
Innovation = implies competition
Disadvs:
Overdependence on foreign trade
Changes in demand can lead to unemployment
Trade exposes a country to many risks
Trade can lead to a less equal distriubtion of income
4.1.6 - What is protectionism and some examples of it?
Protectionism is the act of protecting domestic industries and jobs/employment by restricting/reducing trade
How:
Put taxes on imported products - tariffs
Allow only a certain amount of products to be imported/limit the quantity - Quotas
Manipulate currency - weaken it
Subsidies to local firms
4.1.6 - What are the types of restrictions on trade?
Tariffs Quotas Subsidies to domestic products Non-tariff barriers eg embargos Import licensing Legal and technical standards Voluntary export restraint agreements
4.1.6 - What are tariffs and the benefits and probelms with it?
A tax imposed by government on imports
- Increases the price of imported products making locally produced products more competitive
Benefits
- more local workers employed
- government benefit from tax revenue
- protects against dumping
Costs
- other countries can retaliate by imposing tariffs on goods
- local consumers loss out on their benefit
- distorts comparative advantage
4.1.6 - What are quotas and its benefits and costs?
Limits the quantity of a good that can be imported
Limits the strength of external competition against local producers (protects them)
Have similar costs and benefits to tariffs expect they don’t generate government tax revenue
4.1.6 - What are the impacts of protectionist policies on consumers, producers, government, living standards and equality?
- Consumers - higher prices, less choice
- Producers - domestic benefit can sell more goods at higher price - may suffer higher costs, foregin producers lose out as limited to where they can sell
- Workers - little difference, can be argued create new jobs
- Gov - short run benefit from tariff rev and political popularity, can lead to inefficient economy
- Living standards - deadweight welfare loss
- Equity - regressive effect on distriubtion of income as rise in price affects poorest
4.1.8 - What is a free floating exchange rate system?
where the value of the currency is determined purely by market demand and supply of the currency with no target set by government eg UK and most others
4.1.8 - What is a managed floating exchnage rate system?
where the value of the currency is determined by demand and supply but the Central Bank will try to prevent large changes in the exchnage rate on a day to day basis - done by selling currency and changing interest rates eg Japanese Yen
4.1.8 - What is a fixed exchange rate system?
when a government sets their currency against another and that exchnage rate does not change eg the gold standard
4.1.8 - What are the words to describe changes in currency?
- Appreciation - increase in value of currency using floating exchange rate
- Depreciation - fall in value of currency under floating exchange rate
- Revaluation - when the currency is increased against value of another (fixed)
- Devaluation - decrease in value of one currency against another (fixed)
4.1.8 - What are the factors affecting floating exchange rates?
- interaction and changes of demand and supply
- demand for pounds determined by amount want to buy/visit/invest
- supply of pounds determined by amount of foreign goods want to buy, invest aboard, holidays/place money abroad, speculation
- currency affected by level of exports and imports, investment
4.1.8 -How can governments intervene in an exchnage rate system?
- increase/decrease demand for currency - interest rates - up=strong down=weak
- gold and foreign currency reserves to manipulate value - strengthen pound - increase demand by selling foreign currency/gold in exchange for pounds
