4.1 international economics Flashcards
(20 cards)
Globalisation definition
The increasing integration of the worlds local regional and national economies into a single international market
Factors contributing to globalisation
-Improvements in transport, infrastructure and operations means there are quick, reliable and cheap methods to allow production to be separated across the world
-Improvements in IT and communication allows companies to operate across the globe
-Trade liberalisation has reduced protectionism
-International financial markets have provided the ability to raise money
-TNCs take advantage of low labour costs
Impacts of globalisation on consumers
-More choice
-Lower prices as firms can take advantage of comparative advantage and produce in countries with low labour costs
-However could lead to a rise in prices since incomes are rising so higher demand for goods and services
-Loss of culture
Impacts of globalisation on workers
-loss of jobs for over seas work
-increased migration
-international competition has led to fall in wages for low skilled workers in developed countries
-increasing inequality since more demand for high skilled workers
-TNCs provide more jobs
Impacts of globalisation on producers
-sell products in more countries which reduces risk
-employ low skilled workers in developing countries which is cheaper
-can exploit comparative advantage and have larger markets, increasing profits
-firms who are unable to compete internationally will lose out
Impacts of globalisation on gov
-receive higher taxes
-TNCs have power to bribe governments which could lead to corruption
-if gov uses the correct policies, they can maximise the gains and minimise the losses
Impacts of globalisation on environment
-increased demand for raw materials which is bad for environment
-increased trade and production leads to more emissions
-however, globalisation means the world can work together to tackle climate change and share ideas with technology
Impacts of globalisation on economic growth
-increased investment within countries
-TNCs bring world class management techniques and technologies
-trade increases output since it allows exploitation of competitive advantage
-however TNCs can cause political instability as they may support regimes which are unpopular and in democratic but that benefit them
-comparative cost advantages will change over time so countries leave when it no longer offers an advantage causing structural unemployment and reduced growth
Limitations and assumptions of the advantages theories
-comparative advantage assumes there are no transport costs
-assumes costs are constants and there are no economies of scale
-assumes goods are homogenous
-assumes the factors of production are perfectly mobile with no tariffs or other trade barriers and there is perfect knowledge
Advantages of specialisation and trade
-comparative advantage shows how world output can be increased in countries specialise in what they are best at producing
-allows countries to benefit from economies of scale which reduces costs and global prices
-trade enables greater choice about the types of goods they buy so there is greater consumer welfare
-greater competition providing an incentive to innovate
Disadvantages of specialisation and trade
-can lead to over dependency which can cause problems when there are large price falls in exports of if imports are cut for political reasons
-can cause structural unemployment as jobs are lost to foreign firms who are more efficient and competitive
-environment will suffer due to transport as well as increased demand for resources e.g deforestation
-loss of sovereignty due to signing international treaties and joining trading blocs e.g in the EU
-loss of culture as trade brings foreign ideas and products to a country
factors influencing the pattern of trade
-comparative advantage
-emerging countries
-trading blocs and bilateral trading agreements
-relative exchange rates
what is terms of trade
measures the rate of exchange of one product for another when two countries trade
terms of trade calculation
(average export price index/ average import price index) x100
factors influencing a countries terms of trade
-improvement= rise in export prices or fall in import prices
-deterioration= fall in export prices and rise in import prices
-in short run, exchange rates, inflation and changes in demand/supply of imports or exports
-in the long run, improvement in productivity and changing incomes
impact of changes of tot
-if PED of exports and imports is inelastic, terms of trade would improve the current account on the balance of payments, however if it is inelastic a favourable movement would worsen the current account
-improvement in terms of trade is likely to lead to a fall in GDP and a rise in unemployment as exports fall and imports rise, however a long term decline in the terms of trade suggests a long term decline in living standards as less imports can be bought
preferential trade areas (PTA)
where tariff and other trade barriers are reduced on some but not all good traded between member countries
free trade areas (FTA)
when two or more countries in a region agree to reduce or eliminate trade barriers on all goods coming from other members
customs union
the removal of tariff barriers between members and the acceptance of a common external tariff against non members
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