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Macroeconomics (YR13) > Globalisation and trade > Flashcards

Globalisation and trade Flashcards

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1
Q

What is the definition of absolute advantage?

A

A country has absolute advantage if it can product the good or service at a lower unit cost than countries

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2
Q

What is the definition of comparative advantage?

A

When a country produces a good or service at a lower relative opportunity cost

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3
Q

What are the main sources of comparative advantage?

A

Natural resources, Demographics, Rates of capital investment, R&D, Investment in research and development, non-price competitiveness of producers, institutions

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4
Q

What is terms of trade?

A

Terms of trade measures the average price of a country’s exports relative to the average price of imports

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5
Q

How do you calculate terms of trade?

A

index of export prices/ index of import prices * 100

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6
Q

What is the Raul Prebisch hypothesis?

A

Over the long-run price of primary goods, declines in proportion to the price of manufactured goods=> due to YED, which increases in price, causing a worsening in the terms of trade.

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7
Q

What factors influence patterns of trade?

A

Changes in skills, discovering of natural resources, adoption of new technology, improvements in infrastructure. Industrialisation. Trading blocs. Exchange rates.

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8
Q

What does a Customs Union do?

A

Remove tariffs and quotas between themselves. Agrees on a common external tariff between members. Removes problem of trade deflection

e.g: EU

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9
Q

What does a common single market do?

A

Removes all restrictions on trade and movement of production=> no tariffs and no non-tariffs barriers. Have same product standards. e.g: EU

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10
Q

What does creating an economic union involve?

A

Governments in countries have same approach to fiscal policy. A single authority sets tax rates and government spending

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11
Q

What are reasons for restricting trade?

A

Protecting infant industries, protecting domestic jobs, protecting from dumping, unfair competition, danger of over specialisation, retaliation

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12
Q

What are the types of restriction on trade?

A

Tariffs. quotas. subsidies, non-tariff barriers

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13
Q

What is international competitiveness?

A

This is the measure of a country’s advantage or disadvantage in selling its products in international markets

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14
Q

What is international competitiveness measured in?

A

Price and non price factors

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15
Q

What are non-price factors that measure international competitiveness?

A

higher quality, faster delivery mountains, brand names, advanced product features, availability

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16
Q

What are measures of international competitiveness?

A

Relative unit labour costs, relative price exports, the global competitive index

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17
Q

How do you calculate unit labour costs?

A

total wages/real output

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18
Q

How is the global competitive index measured?

A

Infrastructure, macroeconomic stability, health/education, degree of efficiency in labour & goods markets, technology and innovation

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19
Q

What would be changes in comparative advantage?

A

labour skills ,resources ,technology, infrastructure

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20
Q

What are policies to reduce a trade deficit?

A

tariffs , quotas, export subsidies, raise income tax, change in interest rates, supply side policies

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21
Q

What are protectionist policies?

A

quotas, tariffs, embargos (subsidising industries)

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22
Q

Impact of protectionist policies on consumers

A

higher prices, reduced consumer choice, domestic product quality,

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23
Q

Impact of protectionist policies on producers

A

Increased domestic sales, lead to inefficiency, boost SNP, less efficient , decrease demand for exports

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24
Q

What is the Dutch-Disease?

A

Refers to the adverse impact of the sudden discovery of natural resources

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25
What are the main objectives of the world bank?
Provide long term loans, offer advice, focus on essential sectors
26
What are some criticisms of the world bank?
Some projects have caused environmental damage or displacement , accused of favouring large-scale infrastructure.
27
What is the main objective of the IMF?
To promote global financial stability and support countries in crisis
28
What are the main functions of the IMF?
Provide short-term financial assistance , offer policy advice, encourage structural reforms
29
What are the main criticisms of the IMF?
Structural programmes often impose austerity measures, accused of favouring western economic models
30
What are the main objectives of NGOs?
Address poverty, inequality and social issues
31
What are the functions of NGOs?
Deliver essential services , provide microfinance , advocate for social justice.
32
What are some criticisms of NGOs?
NGOs can sometimes lack co-ordination with governments , leading to inefficiencies, accused of creating dependency culture
33
What is the Lewis Model?
The transition from primary based to manufacturing / industrial areas have have higher income Savings and investment key to growth
34
What are some criticisms of the Lewis Model?
Vast amounts of labour required in agriculture, HIDO MPS, Urban poverty
35
What are the positives of sustainable development?
Increased economic growth => increased LRAS
36
What are the negatives of sustainable development?
Pollution, increased prices, seasonal demand , low skilled , low pay, PED elastic. profit offshoring, environment
37
What are the pros of fairtrade schemes?
Increased income , investment , multiplier effect
38
What are some cons of fairtrade schemes?
High prices received by farmers are not always passed down to workers, high membership fees, encourages to remain in low profit industries.
39
What are criticisms of promote sustainable development?
increased corruption, conditions are attached to aid , increased dependence
40
What is debt relief?
The cancellation or restructuring of government debt to make it more manageable
41
What is a financial market?
A market place where producers and consumers trade in financial assets such as equities, bonds, currencies and derivatives
42
What is the role of financial markets?
To facilitate savings, to lend to businesses, to facilitate exchange, to provide markets for equities, to provide forward markets in currencies and commodities
43
What is the Harrord Domar model?
economic growth depends on the amount of capital that is available for investment, and that the rate of capital accumulation is proportional to the rate of savings
44
What is capital flight?
When money or financial assets leave an economy
45
Explain the concept of trade creation?
When a country joins a trading bloc , CET is removed , resulting in a lower price and trade being created
46
Explain the concept of trade diversion?
CET is placed on foreign import ( outside from trading bloc) , resulting in trade being diverted. Supply of foreign import shifting upwards ( SJapan => SJapan+T)
47
What are reasons for protectionist policies?
Infant industries , protection for domestic employment , to raise government revenue (tariffs), to protect product standards, dumping, balance of payments (current account)
48
What is dumping?
The practice of selling goods in a foreign market at a lower price than the price charged in the domestic market or the cost of production
49
What are the benefits of free trade?
Increased efficiency and allocation of resources , comparative advantage, access to new foreign goods, lower prices, greater consumer choice, economic growth (increase AD and GDP)
50
Positives of tariffs?
Protects domestic industries from foreign competition Boosts local employment Increases government revenue Encourages local production
51
Negatives of tariffs?
Raises prices for consumers Can trigger trade wars Hurts export industries if retaliation occurs Reduces product variety and innovation
52
What factors affect terms of trade in the short run?
Demand and supply of exports/imports, relative inflation rate , exchange rate movements
53
What factors affect terms of trade in the long-run?
Incomes (developing countries), productivity and technology
54
What does an increase in terms of trade mean?
Basket of exports can buy an increase of (x%) more of imports
55
What does negative terms of trade mean?
Country would have to sell more exports to buy the same level of imports
56
How does income of developing countries affect terms of trade?
demand for manufactured goods will increase demand for primary goods will increase but not as much
57
What does an improvement in terms of trade depends on?
If increase export revenue is received
58
What does a deterioration of terms of trade depend on?
If increased productivity leads to increased output
59
Definition of globalisation
process in which national economies have become increasingly interdependent and integrated
60
What has caused globalisation?
Trade liberalisation, trading blocs, growth of TNCs/MNCs, technology , mobility of labour and capital
61
Pros of globalisation?
Lower prices , trade (trading blocs), greater employment , benefits of EOS, free movement of labour , technological transfers
62
Cons of globalisation?
Growing inequality , higher structural inequality , higher structural unemployment, environmental costs , trade imbalances , greater risks of external shocks( e.g interdependence on China) , less cultural diversity- SMEs going out of business
63
Why does a country export and imports certain goods and services?
Due to comparative advantage:( UK- exporting financial services/ importing cars from Germany)
64
What are assumptions and limitations of comparative advantage?
no transport costs, perfect information, no EOS, no R&D
65
What is the WTO?
An international organisation that regulates world trade
66
What are the aims of the WTO?
trade to be non-discriminatory, free from barriers, predictable (help with investment) , promoting fair competition (allowing for infant industries), benefit LICs through specialist provisions
67
What are the roles of the WTO?
To control and monitor trade Help developing countries from benefiting from trade Co-operate with major economic countries Trade liberalisation
68
What is the definition of economic integration?
Processes where countries co-ordinate to reduce trade barriers /harmonise monetary and fiscal policy
69
What is a trading bloc?
A group of countries that join together and agree to increase trade between themselves
70
What is a free trade area (FTA)?
Where multiple countries trade between themselves without any protectionist measures (tariffs, embargos, etc...) e.g UMSCA
71
What is the difference between a Free Trade Area, Customs Union, Common Market, and Trade Bloc?
FTA = Free trade only Customs Union = Free trade + common external tariff Common Market = Customs Union + free movement of people/capital Trade Bloc = Umbrella term for all of these
72
What is a monetary union?
A monetary union is an agreement between two or more countries to share a common currency and have a joint monetary policy, usually managed by a central authority such as a shared central bank. -(Eurozone)
73
What is full economic integration?
Full economic integration is the highest level of economic cooperation between countries, where member states not only share a common market and monetary union but also coordinate all economic policies, including fiscal policy, taxation, and laws. (UK)
74
Benefits of trade deals?
Trade creation and growth Lower prices , increased quantity and choice Technology diffusion Inward FDI
75
What are the cons of trade deals?
-Harms domestic industry (unemployment/inequality) -trade deficits -over specialisation (focusing on main industries) -Environmental trade offs -standards (e.g product standards may be lower) -Deficit (imports>exports) -opportunity cost
76
What are some evaluation of trade deals (HIDO)?
-Time lag -non-tariff barriers (EU standards for UK) -stake holder trade-offs -Opportunity cost
77
What is a quota?
A quota is a limit on the quantity of a good that can be imported, restricting supply to protect domestic producers.
78
What is an embargo?
An embargo is a complete ban on trade with a specific country, often for political or safety reasons.
79
What policies can be used to increase international competitiveness?
Supply-Side Policies -Education & training to boost labour productivity -Investment in infrastructure -Innovation & R&D subsidies -Tax & Regulation Reforms -Lower corporation tax to attract FDI -Deregulation to reduce business costs -Exchange Rate Policies Depreciation/devaluation (makes exports cheaper) Support for digital infrastructure and automation

Macroeconomics (YR13) (3 decks)

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