Globalisation

Question 1

international trade?

Answer 1

exchange of g&s betw countries involving the use of diff currencies and crossing intl borders

Question 2

absolute advantage?

Answer 2

a country is said to have comparative advantage over another country in the production of a good if it can produce = amt of o/p using ↓ resources or it can prod ↑ units of o/p using = amt of resources

Question 3

comparative advantage?

Answer 3

a country is said to have ca over another country in the pdtn of a good if it occurs ↓ opp costs in the pdtn of that good

Question 4

steps for explaining CA? (eg betw US & Vietnam)

Answer 4

1. before specialisation table (US with AA over Vietnam)
2. opp cost (ratio)
3. after specialisation table (US partial, V complete)
4. terms of trade (px/pm)
5. consumption of trade table (w both global goods pdtn ↑)

Question 5

sources of CA?

Answer 5

1. intl diff in factor endowments
2. diff in tech
3. dyn ca

Question 6

sources of CA - intl diff in factor endowment?

Answer 6

diff in factor endowm ∵ intl mobility → diff in cost of fop → diff in cop → diff in p of g&s

Question 7

source of CA - diff in tech?

Answer 7

diff in tech ∵ diff countries w diff stages of dev, diff extent of r&d, diff spd of absorption of new tech → diff in lbr pdty

Question 8

source of CA - dyn CA?

Answer 8

dyn ca ∵ ca ∆

Question 9

limitations of CA?

Answer 9

1. high transp costs
2. immob of fop within country
3. ↑ opp cost
4. trade & currency restictns (protectionism)

Question 10

limitations of CA - high transp costs?

Answer 10

high transp costs → distort relative p → ∆ pattern of trade
(∵ transp costs add sig margin to p of a traded commodity, ↓ gains from specialisation & trade e.g. heavy weight have v high transp costs)

Question 11

limitations of CA - immobility of fop within country?

Answer 11

immobility of fop within country (∵ ca assumes lbr can more freely in a country), but country may not be able to reallocate its lbr quickly & efficiently → diff to max benefits from specialisation & trade

Question 12

limitations of CA - ↑ opp cost?

Answer 12

↑ opp cost ∵ have to use ↑ resources that are ↓ & ↓ suited to its pdtn, but are ↑ for other goods → disappearance/↓ of comp cost advl

Question 13

limitations of CA - trade & currency restictns (protectionism)?

Answer 13

protectionism ∵ gain from specialisation & trade contingent on free trade → hinder world trade & ↓ gains from specialisation & trade

Question 14

determinants of inter indus trade?

Answer 14

1. diff sources of ca
2. dd factors (e.g. pop & ȳ lvl)
3. limitatns to ca

Question 15

determinants of inter indus trade - diff sources of ca?

Answer 15

ca influences pot: export g&s which the country inccurs ↓ opp cost in producing & import g&s which the country inccurs ↑ opp cost in producing

Question 16

determinants of inter indus trade - dd factors?

Answer 16

↑ affluence of trade par, ∆ t&p, pop size
explain with 3 graphs - exporting country, world, importing country

Question 17

determinants of intra-indust trade?

Answer 17

1. dd side factors
2. eos from intra indus specialisatn

Question 18

determinants of intra-indust trade - dd side factors?

Answer 18

customers value diff pdts & variety differently → willing to pay diff p for them

Question 19

determinants of intra-indust trade - EOS from intra indus speciation?

Answer 19

exploit ↑ full ieos, horizontal intra indust trade ∵ combine the ↓ lr unit cop, but can still leads to comp for firms & variety for consumers

Question 20

SG POT?

Answer 20

1. small & open econ
2. total trade 300% of gdp
3. dep on x for growth ∵ small dom market
4. dep on m for raw mat ∵ lack nat resources
5. sg x&m dd low relative to world → price taker

Question 21

micro benefits of int trade?

Answer 21

1. ↑ consumer welfare
2. ↑ firms profits
3. ↑ soc welfare

Question 22

micro benefits of intl trade - ↑ cons welfare?

Answer 22

1. ↑ consumption possibilities
2. ↑ variety & ↑ qlty of g&s

Question 23

micro benefits of intl trade - ↑ cons welfare (↑ cons possibilities)?

Answer 23

based on ca theory, spec & trade → ↑ global efficiency → ↑ world pdtn → ↑ world consumption → indiv countries can consume beyond their ppc → ↑ mat welfare & ↑ cons surp (e.g. thru ↓ p & ↑ consumption lvl)

Question 24

micro benefits of intl trade - ↑ cons welfare (↑ variety & ↑ qlty of g&s)?

Answer 24

intl trade → expand market → ↑ consumer choice → ↑ consumer soverignty

Question 25

micro benefits of intl trade - ↑ firms' π?

Answer 25

1. ↑ dd for firms 2. ↓ costs by exploiting available eos

Question 26

micro benefits of intl trade - ↑ firms' π (↑ dd for firms)?

Answer 26

trade → ↑ consumer base → ↑ total revenue & market share

Question 27

micro benefits of intl trade - ↑ firms' π (↓ costs by exploiting available eos)?

Answer 27

1. ieos 2. eeos 3. leading by doing

Question 28

micro benefits of intl trade - ↑ firms' π (↓ costs by exploiting available eos - ieos)?

Answer 28

↑ scale of pdtn → ieos → ↓ lrac of pdtn → ↑ firms' π → ↑ r&d

Question 29

micro benefits of intl trade - ↑ firms' π (↓ costs by exploiting available eos - eeos)?

Answer 29

cost per unit of o/p ↓ ∵ expansion of size of indus → ↓ pdtn costs

Question 30

micro benefits of intl trade - ↑ firms' π (↓ costs by exploiting available eos - learn by doing)?

Answer 30

by specialising → ↑ exp ∵ workers & managers ↑ eff → ↓ unit cop (esp in knowledge intensive & high-tech indus)

Question 31

micro benefits of intl trade - ↑ soc welfare?

Answer 31

1. exposure to foreign comp 2. trade creation

Question 32

micro benefits of intl trade - ↑ soc welfare (exposure to foreign comp)?

Answer 32

1. exposure to foreign indus → prevent complacency & ↓ bte ∵ face check in market power → ↓ p setting ability → ↑ alloc eff 2. exposure to foreign indus → ↑ efforts to find ↑ eff mthds → ↓ x-ineff & ↑ incentive to r&d (↑ pdt qlty via pdt innov, ↑ qlty via process innov in order to compete globally) → ↑ dyn eff

Question 33

micro benefits of intl trade - ↑ soc welfare (↑trade creation)?

Answer 33

trade creation →