year 13 stuff Flashcards

1
Q

what is absolute advantage

A

when a country can produce a product using fewer factors of production than another country

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2
Q

what is comparative advantage

A

when a country specialises in a good for which it has the lowest opportunity cost and then it trades with another country

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3
Q

what are the assumptions of comparative advantage

A

perfect factor mobility(workers can move from one job to another)
always demand for the goods
trading conditions(exchange rate fluctuations)

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4
Q

what are the beneifts of fre trade

A

allocative efficience- firms become more efficient therofer prices decrease
greater consumer choice - lower prices
improvements in skillset/technology

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5
Q

what is protectionism

A

government actions and policies that restrict or restrain international trade

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6
Q

what is the purpose of protectionism

A

to protect local businesses and jobs from foreign competition

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7
Q

what industries are protected by protectionism

A

infant and sunset industries

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8
Q

what is a tariff

A

a tax which is imposed onimported goods

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9
Q

what is the purpose of a tariff

A

increases the price of imported goods for domestic customers

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10
Q

what are the problems with tariffs

A

retaliation
inequality (regressive efgect)
higher consumer prices can lead to inflation

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11
Q

what does the term hot money mean

A

money moves in and out of the country which has the highest interest rates

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12
Q

what are the conditions/ theories that have to be met in order for devaluation to be successful

A

marshall lerner condition
J curve effect

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13
Q

what does the marshall lerner condition state

A

depreciation of the exchange rate will eventually lead to a net improvement in trade balance as long as the SUM OF PED FOR X AND M >1

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14
Q

what does the j curve show

A

in the SR it is likely that demand for exports and imports is likely to be inelastic
in the LR consumers will switch to the exported goods(prices are lower)

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15
Q

what is the difference between FDI and portfolio investment

A

FDI is about acquiring tangible assets
portfolio is about speculative investments

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16
Q

what are ways to reduce the deficit in the current account

A

deflationary policy
direct controls
devaluation

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17
Q

how does the deflationary policy work

A

BOE increases interest rates, this reduces the domestic consumption

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18
Q

how do direct controls work

A

this is a type of expenditure switching by making imports more expensive(tariffs or quotas)

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19
Q

what is the difference between demand side and supply side to reduce the deficit in the balance of payments

A

supply side policies are more sustainable in the LR
demand side policies are more effective in the SR

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20
Q

what are the effects of a weak pound on X AND M(on another country)

A

imports cheaper
exports expensive

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21
Q

what are exchange rates

A

the value of currency in terms on another

22
Q

what are the factors that determine a currency’s value

A

high FDI = appreciation = more demad for £
portfolio investment = appreciation
High interest rates = appreciation

23
Q

what are the 2 types of currency systems

A

free floating
fixed exchange

24
Q

how does the free floating work

A

where the value of the currency depends wholly on market forces of supply and demand

25
Q

how does the fixed exchange system work

A

the central bank holds large amounts of currency reserves
sell the domestic currency - increased supply
buy foreign currency

26
Q

what is a trading bloc

A

a group of countries that agree to trade with eachother by reducinf barriers and tariffs

27
Q

what are the advantages of trading blocks

A
  • economies of sale - production costs decrease
  • reduced tariffs
28
Q

what are the disadvantages of trading blocks

A

inequality - less developed countries benefit less
potential conflicts
dependency(comparative advantage results in dependencies)

29
Q

what is a customs union

A

group of countries that agree to remove trade barriers and tariffs between them, whilst adopting a trade policy towards non-member countries

30
Q

what are the advantages of customs union

A

Trade Creation
consumers gain - cheaper EU price

31
Q

what factors determine the level of inequality

A

education and skills
taxation
inheritance
limited access to affordable housing and healthcare

32
Q

Uk context with respect to inequality

A
  • large gap between top and average income earners
  • regional disparities = more opportunities in the south
  • housing affordability
33
Q

what are the reasons to why poorer countries with huge potential for growth struggle to compete internationally

A

poor infrastructure
poor quality of human capital (lack of skills)
largescale corruption

34
Q

what is the importance of the financial sector

A

facilitating savings
loan structure for small and medium sized businesses
facilitating international transfers of money

35
Q

how can monetary policy be used to tackle inequality

A

expansionary policy:
- lowering interest rates which encourages borrowing for investment/expansion and housing

36
Q

what are the limitations of using expansionary monetary to tackle inequality

A

may lead to inflation as a result of excess demand

37
Q

how can fiscal policy be used to tackle inequality

A
  • increased government spending on education and healthcare
  • progressive taxation to redistribute wealth
38
Q

what are the limitations of using fiscal policy to tackle inequality

A

my lead to a budget deficit and increased borrowing

39
Q

how can supply side policy be used to tackle inequality

A
  • increased productivity and job creation
  • improves wages and opportunities for lower income groups
40
Q

what are the limitations of using supply side to tackle inequality

A

the benefits may not immediately reach lower income groups

41
Q

what are the disadvantages of a customs union (for UK aswell)

A
  • government will lose potntial revenue from tariffs
  • trade diversion (loss of welfare),group of countries only buy from one another
  • customers lose in UK because EU producers implement tariffs
42
Q

what are quotas

A

type of policy that sets a limit of a good that can be imported into the country

43
Q

what are the 2 limitations of the HDI model

A

ignores qualitative factors such as quality of education
ignores income distribution

44
Q

what is managed exchange rate

A

when the government will start to control the exchange rate once it goes above/ below the limit

45
Q

what is the UK context in terms of trade deficit / surplus

A

£28.5 bn (overall deficit)
£38.2 bn (surplus in services)

46
Q

what domestic policies could be used to improve the balance of payments

A

improvements in infrastructure
deregulation
privatisation

47
Q

what government policies could be used to improve the balance of payments

A

tariffs
subsidies

48
Q

what could be done to the exchange rate in order to improve the balance of payments

A

devaluation

49
Q

what is the name of the term when firm join a trading blovk or a customs union

A

Economic integration

50
Q

what could be done in order to improve non-price competition and encourage market stability

A

introducing supply side policies like :
- subsidies
- lowering corporation tax

IN ORDER TO imprve R and D