7.5e - Economy (International Trade)

Question 1

European Union definition

Answer 1

A collection of 28 European countries who have agreed to unite their economies

Question 2

What does the EU allow free movement of between its member states?

Answer 2

• Labour
• Capital
• Goods
• Services

Question 3

Advantages to UK businesses of the EU:

Answer 3

• Large potential market
• Economies of scale
• More competition (increased efficiency)
• Wider labour force
• Can move business to other parts of the EU

Question 4

Disadvantages to UK businesses from EU:

Answer 4

• More legislation
• More competition
• Low wage rates in other countries
• May lose capital and labour to countries who offer better terms

Question 5

What does the EU customs union ensure?

Answer 5

All goods entering the EU have the same custom duties applied to them

Question 6

Examples of free trade areas:

Answer 6

• EU
• ASEAN (Association of South-East Asian Nations)
• NAFTA (North American Free Trade Area)
• Tripartite Free Trade Area

Question 7

Protectionism definition

Answer 7

When a government protects businesses and jobs from foreign competition by giving them subsidies, while imposing tariffs and quotas on imports

Question 8

What are the methods of protectionism?

Answer 8

• Tariffs
• Quotas
• Embargoes
• Non-tariff policies

Question 9

Tariff definition

Answer 9

An additional tax placed upon the price of a product to make it less competitive

Question 10

What are the different types of tariffs?

Answer 10

• Ad valorem tax (added percentage)

- Specific tax (added fixed amount)

Question 11

Quota definition

Answer 11

A limit on the amount that can be imported into the country (can be a fixed value of % of the market share)

Question 12

Embargo definition

Answer 12

The complete banning of a product

Question 13

Non-tariff policy definition

Answer 13

Subtle attempt to restrict imports (e.g. more red-tape)

Question 14

Advantages of protectionism:

Answer 14

• Protects domestic business from foreign competition

- Keeps money from leaving the country via imports so GDP doesn’t fall

Question 15

Disadvantages of protectionism:

Answer 15

• Prices of imported goods rise due to decreased supply

- If you restrict a country’s trading in your country, they might restrict your trading in theirs

Question 16

Globalisation definition

Answer 16

The process that allows businesses to operate all over the world

Question 17

Methods of international growth:

Answer 17

• Exporting direct to international customers
• Selling via overseas agents or distributors
• Opening an operation overseas
• Joint venture or buying a business overseas

Question 18

Advantages of globalisation:

Answer 18

• Higher profits
• Extend product life-cycles by marketing in new countries
• Avoid tariffs

Question 19

Disadvantages of globalisation:

Answer 19

• More competitive market
• Low costs of production in some countries creates a disadvantage for UK businesses
• More legislation

Question 20

Why is globalisation increasing?

Answer 20

• Internet allows businesses to communicate
• Air travel and giant cargo ships
• EU citizens can work in any other EU country

Question 21

Emerging market definition

Answer 21

A country or area that has the capacity to grow

Question 22

Examples of emerging markets:

Answer 22

• BRIC (Brazil, Russia, India, China)
• MINT (Mexico, Indonesia, Nigeria, Turkey)
• CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey, South Africa)

Question 23

Advantages of emerging markets:

Answer 23

• Lots of potential to sell to an expanding customer base
• Source of lower cost raw materials
• Could become a pioneer and leader in an economy that is just getting off of the ground

Question 24

Disadvantages of emerging markets:

Answer 24

• Potentially weak infrastructure
• Corruption
• Increasingly competitive market