2.2: The Global Economy (Paper 2) Flashcards
1
Q
Define the term globalisation: (1)
A
Growing interconnection of the world’s economies.
2
Q
Explain the reasons for globalisation: (4)
A
- Tarriffs and Quotas: In recent years a lot of trade barriers have been dropped in order to make international trading easier and can lead to globalisation. (1)
- Reduced cost of transport: International transport networks has improved in recent years where for example, the cost of flying has fallen and the number of flights and destinations increased which allows people to travel to business meetings and goods can be transported more cheaply. (1)
- Reduced cost of communication: Modern computing allows firms to transfer complex data instantly to any part of the world which allows more people to work at home instead of going to the office. (1)
- Increased significance of multinational corporations (MNCs): Many firms want to sell abroad, perhaps because domestic markets have become saturated and large MNCs have a global reach and dominate markets. (1)
3
Q
Explain the impacts of globalisation and global companies on the following: (8)
- Countries (3)
- Governments (1)
- Producers (1)
- Consumers (1)
- Workers (1)
- The environment (1)
A
- Countries: Most countries where MNCs are based will benefit because MNCs generate income from overseas and this generates income and contributes to the increase of wealth in the country. (1) The countries that provides these sites for MNCs will also benefit because the extra output and employment from new business development will increase economic growth and should raise living standards for those living in these countries. (1) However, increasing globalisation means that economic events in one country will have a knock-on effect on other countries. (1)
- Governments: The profits made by global companies are taxed by the host nation which increases tax revenue for the government and this money can be spent to improve government services or lower taxes. (1)
- Producers: Many would argue that the main winners from globalisation are the global companies that develop business interests overseas and some specific benefits include access to huge markets, lowers costs, access to labour and reduced taxation. (1)
- Consumers: If a multinational can produce goods cheaply in foreign factories, prices are likely to be lower which is beneficial to consumers because it is cheaper. (1)
- Workers: Globalisation creates new jobs, particularly in developing countries when multinationals open new factories. (1)
- The environment: Many environmentalists oppose globalisation because global economic growth usually means more environmental damage. (1)
4
Q
Define the term multinational corporations (MNCs): (1)
A
Companies that operate in many difference countries. (1)
5
Q
Define the term foreign direct investment (FDI): (1)
A
When a company makes an investment in a foreign country. (1)
6
Q
Explain the reasons for the emergence of MNCs/FDIs: (4)
A
- To benefit from economies of scale: In some industries, firms that exploit economies of scale can reduce costs and MNCs will be in a better position to exploit economies of scale because they are so large. (1)
- Access to natural resources: Many large companies are happy to invest overseas because they need to buy huge quantities of resources. (1)
- Lower transport and communication costs: Developments in transports and communications have helped to drive growth in MNCs because when transportation costs come down, the goods that can be delivered goes up which makes distribution in overseas markets much more attractive. (1)
- Access to customers in different regions: One of the main reasons why MNCs have developed successfully is because they can sell far more goods and services in global markets than they can in domestic markets. (1)
7
Q
Explain the advantages of free trade: (3)
A
- Lower prices and increased choices for consumers: This will be good in countries that cannot produce certain goods because they can be trading in at lower prices and there will be increased choices for consumers. (1)
- Lower input prices: Through international trade, countries can obtain essential inputs for its industries at a much lower cost and can therefore produce goods and services at lower prices which can be sold globally. (1)
- Wider markets for businesses: If countries are free to specialize and trade, firms will be selling to a variety of markets. If one market fails, businesses can still continue to sell to other markets. (1)
8
Q
Explain the advantages of MNCs/FDIs: (5)
A
- Job creation: When MNCs set up operations overseas, income in those countries rises and local suppliers are likely to get work when a multinational arrives. (1)
- Investing in infrastructure: Foreign investors sometimes contribute to a nations infrastructure such as building a new road if it is allowed to develop a business. (1)
- Developing skills: MNCs provide training and work experience for workers when they locate operations in foreign countries which workers can then apply their skills to other services in the country. (1)
- Developing capital: The arrival of MNCs will help to boost the stock of capital in host countries because when a business sets up a new facility such as a factory, it is likely to install up-to-date technology. (1)
- Contributing to taxes: The profits made by MNCs are taxed by the host nation which increases tax revenue for the government that can be used to improve government services. (1)
9
Q
Explain the disadvantages of MNCs/FDIs: (3)
A
- Avoid paying taxes: If MNCs are able to avoid paying taxes within a country, that country does not earn tax revenue and cannot spend on improving government services. (1)
- Environmental damage: MNCs are heavily involved in the extraction industries such as coal, oil and gold mining and these activities are often destructive to the environment. (1)
- Moving profits abroad: The profits made by MNCs abroad are often subject to repatriation which means that profits are returned to the country where the MNCs is based and as a result, the host country loses out. (1)
10
Q
Explain the disadvantages of free trade: (2)
A
- Foreign competition harming domestic businesses: If countries have open economies, it means that imports from anywhere in the world can flow into the economy and if these imports are good in quality and competitively priced, domestic producers might struggle to compete. (1)
- Unemployment: One of the main problems with international trade is the threat to employment levels when domestic industries are threatened by cheap imports and demand patterns changing. (1)
11
Q
Explain the reasons for protection: (7)
A
- Preventing dumping: A government may use trade barriers if it feels that an overseas firm is dumping goods which is where an overseas firm sells large quantities of a product below cost in a domestic market. (1)
- Protecting employment: Trade barriers may be used if domestic industries need protection from overseas competitors to save jobs because importing means labour isn’t doing any work which results in unemployment. (1)
- Protecting infant industries: Infant industries should be protected from strong overseas rivals until they can grow, become established and exploit economies of scale. (1)
- To gain tariff revenue: A government can raise revenue if it imposes tariffs on imports and this money can be spent on government services to improve living standards. (1)
- Protect consumers from unsafe products: A government might be justified in using protectionism if it is felt that overseas producers are trying to sell goods that are harmful or unwanted. (1)
- Reducing current account deficits: A country might need to use trade barriers to reduce imports an increase exports at the same time to reduce the deficit. (1)
- Retaliation: If a foreign business dumps large quantities of goods below cost, a government may feel obliged to retaliate by imposing heavy taxes on those goods when they come into the country. (1)
12
Q
Explain the methods of protection: (3)
A
- Tariffs: One way of restricting trade is to make imports more expensive which will reduce femand for imports and increase demand for goods produced at home. (1)
- Quotas: Another way of reducing imports is to place a physical limit on the amount allowed into the industry and by doing this, domestic producers face less of a threat. (1)
- Subsidies: Subsidies might be given to domestic producers and exporters which will lower prices for consumers because subsidies reduce production costs and increase supply. (1)
13
Q
Explain one advantage and one disadvantage of using tariffs for protection: (2)
A
- Advantage: In addition to reducing imports to protect domestic industries and improving the current account, they also raise revenue for the government. (1)
- Disadvantage: If tariffs are too high, imports may cease and government revenue will be zero and consumers also don’t benefit from this because it raises prices. (1)
14
Q
Explain one advantage and one disadvantage of using quotas for protection: (2)
A
- Advantage: They limit the supply of imports and foreign companies cannot really get around quotes by adjusting prices. (1)
- Disadvantage: Consumer choice is likely to be restricted and domestic producers might be overprotected and fail to improve efficiency. (1)
15
Q
Explain one advantage and one disadvantage of using subsidies for protection: (2)
A
- Advantage: More domestic firms might be encouraged to enter the market which will help to boost exports, employment and improve the current account. (1)
- Disadvantage: It costs government money and it might have a high opportunity cost. (1)
16
Q
Explain the positive and negatice impacts of trading blocs on member countries: (9)
- Advantages (4)
- Disadvantages (4)
A
Advantages:
- If members of the bloc abolish all trade barriers, goods will be cheaper and there will be more consumer choice and faster economic growth. (1)
- FDI/Foreign firms are keen to locate operations in trading blocs to get access to a larger and barrier free market. (1)
- It results in closer cooperations between measures where they help each other out and introduce common standards, laws and customs. (1)
- Trading blocs can reduce cross-border conflict, promote peace and achieve substantial social and economic gains. (1)
Disadvantages:
- Trading blocs encourage regional as apposed to global free trade. (1)
- There is a financial cost to the government and therefore the taxpayer. (1)
- Firms within a trading block could merge and become too powerful which may result in the formation of regional monopolies that exploit consumers in the bloc. (1)
- Countries may rely too heavily on trade within the bloc which makes them more vulnerable to changes in price and demand patterns within the bloc. (1)
17
Q
Explain the impact of trading blocs on non-member countries: (1)
A
Countries that do not belong to trading blocs will face common trade barriers when selling goods to any member inside the bock which will be a disadvantage and are forced to find new markets. (1)
18
Q
State the member countries of NAFTA (North American Free Trade Agreement): (3)
A
- USA (1)
- Canada (1)
- Mexico (1)
