4.1.1-4 Globalisation, specialisation, patterns of trade, terms of trade

Question 1

Factors that explain changes in country’s pattern of trade with other countries (use comparative advantage)

7KAA 7Eval

Answer 1

1. Changes in comparative advantage
EVAL: laws of comparative advantage is based on unrealistic assumptions (eg. constant cost of production)

2. Growth of trading blocs
EVAL: depends on good that the countries in the trading block specialises in (may still need to export from outside of the bloc)

3. Change in exchange rates
EVAL: only short term, exchange rates usually correct itself

4. Changes in competitiveness
EVAL: reshoring

5. Growth of eastern europe and china
EVAL: may increase transport costs

6. increase investment in developing countries
EVAL: increase in wages in those countries-> move production back to developed countries

7. reduction in trade barriers
EVAL: some increased trade barriers instead

Question 2

assess the view that the main cause of globalisation is the increased significance of transnational companies

1 definition, 4 KAA, 4 Eval

Answer 2

Define globalisation- increased economic interdependence between countries

(assess significance of TNCS-> groath of offshoring and outsourcing result in:)

KAA
1. reduction in the** transport costs**
2. reduction in communication costs
3. low labour costs LEDCs
4. less regulation in LEDCs

EVAL (other factors that cause globalisation)
1. reduction in trade barriers
2. **opening up **of economies to world market (eg China)
3. higher **real incomes **(increase demand for imports)
4. increase number and size of trading blocs

Question 3

to what extent do the costs of globalisation outweigh the benefits

5 KAA, 5 Eval

Answer 3

KAA (costs)
1. overdependence on imports and exports
2. **exploitation **of workers
3. negative externalities
4. **increase inequality **between MEDC and LEDC
5. TNCs engage in tax avoidance

Eval (benefits)
1. law of comparative advantage
2. increase world output-> increase living standards
3. reduction in absolute poverty in LEDC
4. lower prices, more consumer surplus
5.** larger markets** for firms, increase in EOS
6. increase tax revenues for govt