4.1 International Economics Flashcards
(34 cards)
What is globalisation?
The ever increasing integration of the world’s economies into a single, international market.
What are the key components involved in globalisation?
- Free trade of goods and services
- Free movement of capital and labour
- Free interchange of technology and capital
What impact did globalisation have on trade between nations?
It led to more trade between nations and increased transfers of capital, including foreign direct investment (FDI).
What is one effect of globalisation on countries’ interdependence?
The performance of one country increasingly depends on the performance of others.
What has contributed to the increase in global trade in the last 50 years?
- Development of capital and knowledge in developing countries
- Efficient transport methods
- Cost advantages of cheaper labour
What role do Multinational Corporations (MNCs) play in globalisation?
MNCs own or control production of goods and services in multiple countries, leveraging economies of scale.
How has containerisation impacted global trade?
It has made shipping goods cheaper and more efficient, contributing to competitive markets.
What is one potential negative impact of globalisation on individual countries?
Trade imbalances, such as the US running a large current account deficit with China.
What is absolute advantage?
A country has absolute advantage if it can produce a good or service using fewer resources and at a lower cost than another country.
What is comparative advantage?
It occurs when a country can produce a good or service at a lower opportunity cost than another country.
What does the terms of trade measure?
The volume of imports an economy can receive per unit of exports.
How is the terms of trade calculated?
Index price of exports / index price of imports.
What happens when terms of trade are above 100?
They are considered to be improving.
What is a disadvantage of specialisation in international trade?
Countries may become over-dependent on the export of one commodity (primary product dependency)
What is one impact of emerging economies on global trade?
They are participating more in world trade and taking a larger proportion of exports.
Fill in the blank: The growth of _______ blocs has created trade between members but diverted trade from elsewhere.
trading
What is trade creation?
When a country consumes more imports from a low-cost producer and fewer from a high-cost producer.
What can lead to a deterioration of a country’s terms of trade?
A decrease in export prices or a rise in import prices.
What is one effect of improving terms of trade on an economy?
The economy can import more goods for each unit of export.
What is a potential negative environmental impact of globalisation?
Deforestation, water scarcity, and land degradation.
What could be a consequence of increased demand from China on commodity prices?
It could push up the price of raw materials.
What effect does a favorable terms of trade have on inflation?
It can help reduce the effects of cost-push inflation as import prices fall relative to export prices
A favorable terms of trade means that a country can import more goods for each unit of export.
What are the consequences of worsening terms of trade?
For every import, the country has to export more, leading to:
* Higher technology costs
* Limited productivity
* Fall in living standards
* Difficulty in earning foreign currency
* Challenges in paying foreign debt
Worsening terms of trade can negatively impact economic conditions.
Define a Free Trade Area.
Countries agree to trade goods without protectionist barriers
Examples include NAFTA and EFTA.
