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Econ 102 > WEEK 3 > Flashcards

WEEK 3 Flashcards

1
Q

When did Globalization’s First Unbundling occur?

A

1820 - 1990

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2
Q

What happened during the First Unbundling?

A
  • A7 declined; G7 increased

- Economic globalization = integration of markets across space

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3
Q

Why did globalization’s first unbundling create this massive reversal of fortune?

A
  • Technological revolution > Steam revolution

- Government policy; government decisions > trade liberalization

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4
Q

What is the DEMAND for a product/service?

A
  • Specifies the AMOUNTS of a good/service that will be purchased at all possible price levels
  • lower the price; greater the demand
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5
Q

What is the SUPPLY of a product/service?

A
  • Describes the TOTAL AMOUNT of a specific good/service that is available to buyers
  • higher the price; the greater the supply
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6
Q

Demand = Supply at Product and Quantity Equilibrium

A
  • If the DEMAND is steep (inelastic) - the buyers’ demand is NOT sensitive to the price
  • if the SUPPLY is steep - shows the degree of difficulty of making more products available for purchases
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7
Q

Prices depend on supply/demand for the product

A
  • market is “local” = level of price depends on LOCAL DEMAND AND SUPPLY
  • market is “global” = price and quantity are more stable
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8
Q

International Prices

A
  • 1815
  • Due to political forces: Napoleonic Wars; Congress of Vienna (1820); Pax Britannica (military power)
  • Power is linked through military and economy
  • Britain was becoming the first superpower
  • Trade > Industrialization > Economic and Military Power (new source of wealth)
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9
Q

Who is Adam Smith?

A
  • Wrote Wealth of Nations in 1776 > markets and industry are sources of wealth NOT JUST LAND
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10
Q

What is Ricardo’s Principle of Comparative Advantage?

A
  • Trade raises all nation’s productivity

- Gains-from-trade reasoning based on individual warfare, NOT kingdom’s power and size

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11
Q

Main Trigger of Unbundling: Steam Revolution

A
  • Introduced machines in the production process
  • Radical reduction in trade costs
  • Telegraph transformed communication
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12
Q

Steam Revolution: What is the principle of the Steam Engine?

A
  • Heat has been converted into movement
  • Britain became a powerhouse in TEXTILE PRODUCTION - used to produce textiles when connected to looms and gins
  • 1825 - steam engine trains; locomotives
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13
Q

Steam Revolution: Internal Combustion Engine - Electricity

A
  • 1886 - first cars

- 1880s - electricity used in homes

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14
Q

Steam Revolution

A
  • Steamships evolve gradually
  • Steam engine revolution - decreases transportation costs
  • Trade costs fluctuated for various reasons
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15
Q

First Unbundling

A
  • Lower trade costs drive “unbundling” of production and consumption
  • Production no longer needs to be near consumption
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16
Q

2nd Trigger of Unbundling

A

Trade Liberalization

17
Q

Trade Liberalization

A
  • 3 periods (1815-1913)
    1. UK becomes a free trader
    1. Continent copies the UK
    1. Continental Reversal
18
Q

First Period: UK becomes Free Trader

A
  • Leads to 1846 Repeal of Corn Act (Free Trade in grain)
19
Q

Second Period: Continent Copies the UK

A
  • free trade policy spreads to Continental Europe in 1846-1869
20
Q

Third Period: Continental Reversal

A
  • Protectionism rises from 1879-1914
  • Bismarck > Import Substitution Industrialization or Infant-Industry Argument
  • Nationalistic view
21
Q

Trade Liberalization: Tariffs

A
  • 1820, 1875, 1913
  • Tax levied at the border on import of products
  • 2 types
22
Q

What are the 2 types of tariffs?

A
  • Ad Valorem - Tax expressed as a percentage of the purchasing price
  • Specific Tariff - Tax expressed as dollar per unit
23
Q

Import Substitution Industrialization or Infant-Industry Argument

A
  • Protectionism policy aimed at inducing domestic firms to enter and produce in industries judged as important for the development of a country
  • often failed b/c not competitive; need for continuous protection
  • E.g. Bismarck
24
Q

Three Periods to the First Unbundling

A
  • Set Up (1815-1913) - Steam Revolution & Pax Britannica
  • Confrontation (1914-1949) - Protectionism & Rebundling
  • Resolution (1949-1990) - Transport/Trade Policy Reductions; more unbundling
25
Q

Summary of Main Changes

A
  1. Trade BOOMED
  2. Northern Industrialization
  3. Southern DE-Industrialization - A7 decline
  4. Urbanization
  5. The Great Divergence
26
Q

Why did China and India deindustrialize?

A
  • Markets expand globally, but production clusters locally
  • First unbundling paradox
  • Induces manufacturing to cluster in factories/industrial districts to save on costs of moving ideas and people
27
Q

What is a downfall of clustering?

A
  • Creates know-how imbalances due to high communication costs
28
Q

Why is industrialization a VIRTUOUS cycle for the NORTH, but a VICIOUS cycle for the SOUTH?

A
  • Falling Trade Costs
  • Comparative Advantage > Industrial Exports > Industrial Clustering (and specialization) > Industrial Competency > Comparative Advantage …

Econ 102 (4 decks)

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