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A Level Economics > 7.1: A Global Perspective: Globalisation and Trade > Flashcards

7.1: A Global Perspective: Globalisation and Trade Flashcards

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1
Q

Globalisation

A

The ever increasing integration of the world’s local, regional and national economies into a single, international market

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2
Q

Factor’s contributing to globalisation

A

Trade in goods/services
Improved transport
Liberalisation of trade
MNCs
International flow of capital/financial markets
Communications and IT
End of Cold War -> emerging economies

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3
Q

Characteristics of globalisaltion

A

MNCs
Trade blocs
Dilution of culture
Inrease in international trade

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4
Q

Benefits of globalisation for consumers:

A

Cheaper price
More choice
Higher incomes

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5
Q

Drawbacks of globalisation for consumers:

A

Homogernised goods
Increase in price of commodities

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6
Q

Benefits of globalisation for producers:

A

Economies of scale -> lower costs
Specialisation
Increase target market

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7
Q

Drawbacks of globalisation for producers:

A

More competition
Dependence for trade
‘Footloose’ capitalism

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8
Q

Benefits of globalisation for workers:

A

Inrease in employment
Increased migration

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9
Q

Drawbacks of globalisation for workers:

A

Exploitation
Increase in structural unemployment
Geographical immobility

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10
Q

Benefits of globalisation for governments:

A

Tax benefits
Increase in FDI

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11
Q

Drawbacks of globalisation for governments:

A

Corruption
Tax avoidance

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12
Q

Benefits of globalisation for a country:

A

Reduce poverty
Immigration -> fill job shortages

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13
Q

Drawbacks of globalisation for a country:

A

Localised job loss
Dilution of culture
Current account deficit

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14
Q

Benefits of globalisation for the environment:

A

Dynamic efficiency by MNCs -> innovation + improved environmental practices

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15
Q

Consequences of globalisation evaluated (adavantages)

A

Costs fall -> price fall (micro)
Competition -> economic welfare (micro)
Reduced poverty
Balance of payments

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16
Q

Drawbacks of globalisation for the environment:

A

Diminishing resources (tragedy of the commons)
Pollution

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17
Q

Consequences of globalisation evaluated (disadavantages)

A

Pollution -> negative externalities (micro)
Harm to local/small producers -> loss of culture -> structural unemployment -> loose employment

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18
Q

Absolute advantage

A

When a country can produce a good or sevice in greater quantity for the same cost or the same quantity at a lower cost than another country

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19
Q

Comparative advantage

A

Exists when a country is able to produce a good more cheaply relative to other goods produced domestically than another country

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20
Q

Theory of comparative advantage

A

Countries will find it mutually advantageous to trade if the opportunity cost of production of goods differs

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21
Q

Net output gains

A

Increase in output comparative advantage exists + countries specialise

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22
Q

Advantages of trade in an international context:

A

Greater world output -> gain in economic welfare
A greater variety of goods and services could be produced
Outward shift in PPF curve

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23
Q

Disadvanatges of trade in an international context:

A

Over reliance of export of one good
Over use of non-renewable resources (tragedy of the commons)

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24
Q

Real world comparative advantage examples:

A

Saudi Arabia and oil
New Zealand and butter
Germany and cars

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25
Gravity theory
Countries tend to trade with similiar countries with close geographical proximity
26
Pattern of trade
How we trade between countries and how these trade flows change
27
Factors influencing patterns of trade:
- Compartive advantage i.e. developing countries have gained an advantage in the production of manufactured goods due to low labour costs - Emerging economies - due to collapse of communism, more countries involved in world trade - Growth of trading blocs and bilateral trading agreements -> trade creation - occurs when a country consumes more imports from a low cost producer, and fewer from a high cost producer trade diversion - occurs when trade shifts to a less efficient producer Changes in exchnage rates - SPICED, WPIDEC
28
Terms of trade
Measures the relative price of exports to imports in an economy
29
Balance of trade
The difference between the total value of exports compared to the total value of imports
30
Terms of trade (index) =
(index of export prices / index of import prices) x 100
31
What happens if the terms of trade index deteriorates?
Terms of trade have worsened
32
What happens if the terms of trade index improves?
Terms of trade improved -> export price rises -> demand + comeptitiveness fall -> worsens balance of payments
33
Why might terms of trade improve?
Specialisation in higher value exports World real income levels may chnage in favour of this countries exports Exchange rate appreciates causing import prices to fall Fall in the world price of imported technology Trade deal which lowers import tariffs or increases import quotas
34
Why might terms of trade fall?
Can't specialise in higher value exports World real income levels may change against a countries exports Exchange rate depreciates cauisng import prices to rise Rise in world price of imported technology Trade deal which rises import tariffs or decreases import quotas
35
What can terms of trade be used to measure?
Welfare of an economy -> a fall in terms of trade may lead to a fall in living standards
36
Free trade areas
A group of countries who agree to trade without barriers but mantain their own individual barriers with countries outside that area
37
Customs union
A free trade area but uses a common external tariff (CET) against the rest of the world
38
Pros of regional tarde agreements
Encourages specialisation based upon comparative advantage Tarde creation
39
Cons of regional trade agreements
Trade diversion Ineffecient producers in the bloc are protected
40
Monetary union
Countries use the same currency (EURO)
41
Conditions for the success of a monetary union
Economically integrated ECB regulates the rate of interest and monetary policy Use the same interest rate i.e. aim of inflation to be below 1.5%
42
Bilateral trade agreement
A regional trade agreement between two countries
43
Trading bloc
A group of countries that have signed an agreement to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves
44
Regional trade agreement
An agreement between at least two countries to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves
45
Common market
A customs union where in addition both labour and capital have freedom of movement whithin the area and where product standards and laws concering free movement of goods and services are common between countries
46
Trade creation
The replacement of more expensive domestic production or imports with cheaper output from a partner within the trading bloc
47
Trade diversion
The replacement of cheaper imported goods by goods from aless efficient trading partner within a bloc
48
Non-tariff barriers
Measures imposed by a government that have the effect of inhibiting international trade
49
World Trade Organisation (WTO)
Promotes world trade through reducing trade barriers and policing existing agreements -> settles trade disputes by acting as a judge
50
Conflicts between WTO and Regional Trade Agreements (RTA)
- Trading blocs might distort world trade or adversely affect those who do not belong to them - Setting up a customs union or a free trade area could be seen to violate the WTO's principle of having all trading partners treated equally (especially common if a tariff is applied). However, they can compliment the trading system and the WTO strives to ensure that non-members can trade freely and easily with the member of a trade bloc
51
Reasons for restrictions on free trade
Reduce trade deficit Infant and sunset industries need protecting Protect domestic jobs
52
Quota
Places a quantity (suppy) limit on the volume of imports of a product
53
Subsidy
Form of financial help given to domestic producers in order to lower their costs and help them compete in international markets
54
Non-tariff measures
Administrative barriers Exchange rate manipulation Embargoes
55
Impact of protectionist policies for consumers:
- Less choice, higher price, loss of consumer surplus and economic welfare + Supports local business -> help communtiy
56
Impact of protectionist policies for producers:
+ Reduce competition, protect domestic firms and jobs - Derived demand cause prices of other goods to rise, infaltionary (cost-push), increase costs of production -> less competitive
57
Impact of protectionist policies on the government
+ Tax revenue, jobs protected -> don't pay benefits, reduce current account deficit - Lead to government failure, props up inefficient business
58
Impact of protectionist polices on living standards
- WTO states it negatively affects living standards as stifles growth, increase in price of goods and services -> not everyone can afford + Protects jobs -> protects income -> improves living standards in short term
59
Impact of protectionist policies on equality
+ Protect income for farmers (raises incomes which are often low) - Tariffs are regressive -> damaging to those on low and fixed incomes -> may increase wealth and ineqaulity
60
Balance of payments
Financial transactions bewteen one country and another
61
Three accounts in balance of payments
Current Capital Financial
62
What is in the current account?
Trade in goods Trade in services Net income flows (primary) Net transfers (secondary)
63
Reasons for a current account deficit
High marginal propensity to import Strong pound Favourable terms of trade Inflation -> cost of production rise -> prise rises -> competitiveness falls -> exports fall Lack of productivity Emerging economies = competitive Deindustrialisation
64
Reasons for a current account surplus
Low marginal propensity to import Weak pound Unfavourable terms of trade High productivity
65
Is a deficit a problem?
No - if you can balanc it out with current account Dpends why i.e. if its exchange rates = no problem, productivity = problem
66
Capital account
Repatriation of financial capital from people entering and leaving UK plus government transfers such as foreign aid
67
Financial account
Records the majority of flows of financial capital into and out of a country
68
Long-term direct capital flows
Foreign direct investment - net acquisition of productive assets by UK firms overseas and by foreign firms in UK i.e. Nissan in Sunderland Net portfolio investment - purchase of financial assets i.e. shares
69
Short-term direct capital flows
Hot money (foreign exchange markets)
70
The two main policies to reduce expenditure and switiching (3D's)
Expenditure reducing policies: Deflation - reducing AD for goods and services i.e. rise in income tax, raise interest rates Expenditure-switching policies: Direct control/devaluation - encouraging consumers to swithc their spending to domestic goods by changing the relative prices of UK and overseas output i.e. by devaluation or tariffs and quotas
71
Significance of global trade imbalances
- Countries are interdependent -> surplus/deficit in current may indicate an unbalanced economy -> over reliant on other economies -> difficult to attract sufficent financial flows in order to finance a current account deficit -> unsustainable in long run - UK reliant on other economies - not an issue if financial and current account on surplus - In EUROZONE, deficits in current account concern as they have a fixed exchange rate - Surplus indicates low consumer spending and a low savings ration. Could mean consumers enjoying fewer goods than they could -> lowers living standards - Significance depends why there is a deficit - some countries happy to have one as it allows them to have a financial account surplus to import other goods
72

A Level Economics (15 decks)

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