Economics Theme 2.4.3

Question 1

What are the advantages to specialisation

Answer 1

Specialisation increases output as economic units become more effective and efficient in what they produce due to:
Greater understanding of the requirements of production
Each economic unit can specialise in what they are best at
Efficient use of time as there is no switching between tasks
Technical economies of scale as capital equipment is used to produce goods and services

Question 2

What is specialisation

Answer 2

Occurs when an individual, firm, or country produces a narrow range of goods or services.

Question 3

Why is specialisation good for intenational trade

Answer 3

The increased output can then be exchanged for other goods and services that the economic unit is not as good at producing
Specialisation allows for the exchange of goods and services between the economic units

Question 4

What are the disadvantages of specialisation

Answer 4

Work can become monotonous
This can affect quality and productivity
Can increase absenteeism
May be limited by the size of the market
Small firms can not afford to introduce specialisation
Threat of structural unemployment if an industry goes into decline
Reduces flexibility of the workforce
Production flows may be stopped affecting the ability to meet demand

Question 5

What are the benefits of specialisation by countries

Answer 5

Allows for trade
Improved national income (GDP)
Economies of scale leading to lower costs
Greater choice for consumers
Better quality goods
Interdependence leading to better relations between countries

Question 6

What are the costs of specialisation by countries

Answer 6

Over-reliance on a limited number of industries
Risk of structural unemployment
Reliance on other nations
Threat of external factors e.g. political unrest or natural disasters can cut off supplies
Less developed countries may be discouraged from moving into new industries or specialising in tertiary industries

Question 7

What is absolute advantage

Answer 7

Absolute advantage is a situation where a country can produce a good or service using fewer resources than that of another country. They can produce cheaper

Question 8

What is comparative advantage

Answer 8

Comparative advantage is therefore where a country can produce a good at a lower opportunity cost than that of another

Question 9

What is the world trade organisation

Answer 9

stablished in 1995, its purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers
The WTO is the only international agency overseeing the rules of international trade
It polices free trade agreements and settles trade disputes between governments and organises trade negotiations
WTO decisions are absolute and every member must abide by its rulings
There are currently 160 members
Most Favoured Nation (MFN) status is required for all members providing trade advantages such as reduced tariffs

Question 10

What are trading blocks

Answer 10

Trading blocs are when the governments of a group of countries agree to trade together freely i.e. normally with no trade barriers
The countries are normally grouped together geographically e.g. the European Union (EU)
The members of a trading bloc make preferential economic, and sometimes political, arrangements to boost trade within the member states

Question 11

what are Preferential trade areas trading blocks

Answer 11

Preferential trade areas
Members agree to either reduce or eliminate trade barriers for a select number of goods or services, resulting in partial trade liberalisation

Question 12

What are free trade areas trading blocks

Answer 12

Free trade areas
Members agree to either reduce or eliminate trade barriers for all goods and services, resulting in trade liberalisation

Question 13

What are custom unions trading blocks

Answer 13

Customs unions
Members agree to the removal of trade barriers amongst themselves and a common approach to trade barriers when dealing with countries outside of the bloc
In a sense the bloc is now acting as one homogenous group

Question 14

what are common markets trading blocks

Answer 14

Common markets
Members agree to the removal of trade barriers as well as the freedom of movement of factors of productions within the bloc
Often also involves the agreement of common economic policies

Question 15

What are economic unions trading blocks

Answer 15

Economic unions
Comprises of the features of both a customs union and a common market, including common economic policies

Question 16

What are the main trading blcoks

Answer 16

the EU eurpoean union
and NAFTA north american free trade agreement
SAFTA singapore american free trade agreement
ASEAN association of south east asian notion
SAARC SOUTH ASIAN ASSOCIATION OF REGIONAL COOPERATIION

Question 17

What is a free trade area

Answer 17

A free trade area is a group of countries that have removed most or all tariffs and/or quotas
the eu is not a free trade area

Question 18

What is custom union

Answer 18

A customs union will involve internal free trade amongst member states, but also includes a common external tariff
Each member of the customs union cannot pursue their own international trade policy, instead trade negotiations are conducted on behalf of all member states
The EU is the biggest customs union in the world with a 15.5% share of world trade

Question 19

What is an SEM

Answer 19

Each member of the customs union cannot pursue their own international trade policy, instead trade negotiations are conducted on behalf of all member states
The EU is the biggest customs union in the world with a 15.5% share of world trade

Question 20

What is the advantage of a single european market

Answer 20

Trade creation
Trade is encouraged within member states because there are no barriers, so additional trade is created within the block.

Competition
Stronger competitive forces within the SEM can drive productive and dynamic efficiency, which will benefit consumers.
Access to markets
The SEM creates a market of 28 countries and a population of over 500m, offering significant scope for firms to expand.
Freedom of movement
There is the right to live and work anywhere within the SEM without restriction which boosts labour mobility.

Question 21

what are the disadvantages of a single european market

Answer 21

Trade diversion
The existence of the common external tariff, diverts trade away from the EU. Goods within the SEM may be more expensive, and this could damage consumer welfare.
Monopolies
In some markets e.g. gas and electricity, tariff has seen significant merger activity and the creation of large monopolies seeking to exploit the available economies of scale.
Unemployment
In some countries, workers may lose their jobs as production is transferred to member states with lower labour costs.
Cost
Membership of the SEM costs the UK around £15billion per year.

Question 22

What are the postitives from eu englagement

Answer 22

Trade diversion
The existence of the common external tariff, diverts trade away from the EU. Goods within the SEM may be more expensive, and this could damage consumer welfare.
Monopolies
In some markets e.g. gas and electricity, tariff has seen significant merger activity and the creation of large monopolies seeking to exploit the available economies of scale.
Unemployment
In some countries, workers may lose their jobs as production is transferred to member states with lower labour costs.
Cost
Membership of the SEM costs the UK around £15billion per year.

Question 23

What are the disadvantages from eu enlargement

Answer 23

Trade diversion
The existence of the common external tariff, diverts trade away from the EU. Goods within the SEM may be more expensive, and this could damage consumer welfare.
Monopolies
In some markets e.g. gas and electricity, tariff has seen significant merger activity and the creation of large monopolies seeking to exploit the available economies of scale.
Unemployment
In some countries, workers may lose their jobs as production is transferred to member states with lower labour costs.
Cost
Membership of the SEM costs the UK around £15billion per year.

Question 24

how has globalisiation increased trade

Answer 24

It increases the overall level of economic welfare
To give consumers a wider range and choice of goods and services
To allow the exploitation of economies of scale, so that firms can benefit from increased production to sell in foreign markets
To encourage greater competition, which should encourage greater efficiency and technical innovation

Question 25

what are the benefits of growth in trade

Answer 25

Increased overall global output By using comparative advantage Greater competition Trade opens international borders, promoting a greater degree of competition Employment opportunities Export industries create employment through the expansion of aggregate demand Encouragement of specialisation, leading to greater efficiency If a country is to trade effectively it needs to specialise in order to compete, which drives down costs and unit prices Improved quality of goods and services Via increased competition and dynamic efficiency, the overall quality of goods and services can be enhanced

Question 26

what are the disadvantages of the growth of trade

Answer 26

Over-specialisation If a country aims to engage in trade, it will need to specialise, however if world demand falls, this can give an economy significant problems Structural unemployment Over-specialisation may create structural unemployment, which may be magnified in particular regions in the UK Infant industries Some countries are concerned that infant and new industries struggle to compete with MNC’s, thus creating local problems and limited employment opportunities as firms struggle to establish themselves Dumping Countries that enjoy significant absolute advantages in the production of certain goods, often agricultural, may sell their surpluses at very low prices, and drive local producers out of the market Environmental concerns The process of transporting large quantities of goods around the world is costly and uses up significant quantities of scarce resources

Question 27

what are visuables

Answer 27

Visibles are physical or tangible products e.g. a car or a television, you can touch them We often call these products goods

Question 28

what are invisables

Answer 28

Invisibles are non physical or intangible e.g. financial consultancy or teaching, you can’t touch them We often call these products services

Question 29

what is the effefct on trade for a strong econmy

Answer 29

A strong economy will import goods and services in order to meet its needs This might lead to an increase in domestic consumption However, it might be components or raw materials required in the production process for goods and services These products might then be exported

Question 30

what is the effect on trade if a country increases productive capacity

Answer 30

If an economy increases its productive capacity by utilising the factors of production this will allow it to increase supply to the rest of the world This will lead to an increase in exports Of course, countries will need to supply goods and services that are in demand to be able to do this

Question 31

what is the effect on trade for newly rich countries

Answer 31

increasing their demand for goods and services These include the BRICS nations of Brazil, Russia, India, China and South Africa who had 44% of the global population in 2013

Question 32

what country has largest amount of inports and exports

Answer 32

China is the biggest economy in terms of global exports They have used their low costs to supply everything from textiles to electronics As China sees economic growth their costs will increase e.g. higher wage costs making it more difficult to maintain demand for exports Many countries utilise their natural resources in order to export e.g. Saudi Arabia is oil rich

Question 33

why do exports increase

Answer 33

Real GDP of other countries increases Changes in taste and fashion lead to interest in products Price inelastic exports are likely to see a fall in volume sales but an increase in total revenue Productive capacity increases allowing for greater sales of a product Product differentiation leads to greater demand for products

Question 34

how has imports improved quality of live

Answer 34

This has led to an influx of cheap imports from countries that have an advantage in producing these goods and services Low wage economies have produced goods such as textiles and cheaper electronics that have undercut UK based firms and led to a decline in these industries in the UK These goods have led to an increase in living standards as we buy more at lower prices making our income go further However, many workers have suffered as traditional industries have declined