4.1 International Economics Flashcards
(53 cards)
What is globalization?
The increased interdependence of local, regional and national economies into a single international market
What are the 5 factors which have contributed to globalization?
Development in infrastructure and transportation
Developments in technology and communications
International financial markets
Trade liberalization
TNC’s
What are the impacts of globalization on workers dependent on?
What part of the world the workers are situated in. This is because in developing economies there are less strict labour regulation so firms can pay workers less, but because these worker would not be previously working if it weren’t for the TNC’s there is job creation here and job losses from whichever country the TNC has moved from
What is the difference between absolute and comparative advantage?
Absolute advantage is the country which can produce a good or service at the lowest cost, but comparative advantage is the one who can produce at the lowest opportunity cost.
What are the limitations of the theory of comparative advantage? 4
It assumes costs are constant (no EoS)
it assume factors of production are perfectly mobile
It assumes there are no transportation costs
It assumes goods produced are homogenous
What are advantages of specialization and trade? 5
Specialization leads to higher global output
It leads to greater choice
It leads to greater competition
Different countries have different factors of production so trade allows these to be more mobile
Isolated countries such as North Korea tend to have more stagnant growth when compared to other economies
What are the disadvantages of specialization and trade? 5
It can cause an over reliance on certain countries, making global trade more susceptible to supply side shocks
It can cause structural unemployment as it can cause production to shift away from regions that may have historically been dependent on trade (Manchester in ship making)
It can lead to a reduction in sovereignty as countries join trading blocs
It harms the environment to transport goods
It can lead to cultural dilution
What factors affect the patterns of trade? 4
Comparative advantage
Emerging Economies
Trading blocs and Agreements
Relative Exchange rates
What are the terms of trade for an economy?
It is a weighted index which measures the volume of imports an economy can receive per unit of exports
What is the formula for terms of trade?
(Average export prices index /Average import price index) X 100
What affects short run terms of trade?
Inflation
Exchange Rates
Supply/Demand
What affects long run terms of trade?
Changes in Productiivty
Changes in incomes
What are the impacts of changes in terms of trade?
If PED for imports and exports is inelastic then an improvement in the terms of trade will lead to an improvement in the balance of payments
An improvement in the terms of trade is likely to result in a fall in real GDP because if price of exports increases then the country will export less but if price of imports falls then imports will rise, in each case leading to less output being produced and thus a lower GDP.
What is a free trade area?
This is where member nations decide to reduce or eliminate protectionist measures for other member nations.
What is a preferential trade area (PTA)?
This is when members decide to alleviate tariffs and protectionist measures on some goods and services
What is a free trade area?
This is when members decide to alleviate tariffs and protectionist measures on all goods and services
What is a customs union?
This is when tarries and protetionst measures apply to no goods and services within the agreement, but there is also a common tariff applied to those not in the agreement
What is a common market?
This is when there are no protectionist measures within, a common tariff to non members and all factors of production are completely mobile within the agreement
What is a monetary union?
Same as a common market but also the same currency is used and the same central bank control monetary policy
What are the advantages of free trade agreements? 6
Firms have access to greater consumer base
There is greater incentive to be dynamically efficient as there is more competition
Regions can specialize and therefore the bloc can have comparative advantage
Those in the bloc are less prone to cheap exports from elsewhere (dumping)
Consumers have higher choice and lower prices due to competition
There is large amounts of job creation
What are the disadvantages of free trade agreements? 8
They can make other world exports less competitive leading to trade diversion
It can cause greater regional inequalities as successful firms can set up their factories in low income areas and exploit the labor there
It can lead to retaliation with other countries forming them as well
It is often the second best solution, as economic efficiency would be maximized with no barriers to trade
They lessen national sovereignty
They can be ineffective if they only cover a certain amount of goods and services
There can be less competition as small less efficient firms can bed riven out of the market making it more oligopolistic
Developed countries often benefit more than developing countries
What is trade creation and trade diversion?
Trade creation is when a reduction in protectionism leads to a shift in production from high cost producer to a low cost producer vice versa for diversion
What is the role of the WTO?
To ensure people are sticking to their agreements
To promote trade liberalization
What are some reasons for trade restrictions? 7
Protection from dumping
National Security
Dangers of over reliance on
Protection from dumping
Protecting infant industries
Protection from unfair competition
Job protection
Terms of trade
