Globalization and Trade Flashcards
Definition of Globalization
When world economy’s
become increasingly interdependent and related to each other.
2 Causes of Globalization
- Trade liberalization (reducing barriers to allow for comparative advantage trading)
- Technological advancement
4 effects of globalisation
- inequality
- unemployment
- prices (comparative advantage, increase competition)
- overuse of natural resources
MACRO objectives
how does globalization cause inequality (4 points)
- Widening Income gaps
- Uneven economics growth
- Dominance of MNC’s (monopsony, exploitation of labor and regulatory capture)
what is absolute advantage
A country can produce more goods and services than another for the same factor inputs
what is comparative advantage theory
a country should specialize in producing goods and services in which they have a lower opportunity cost in than other countries
On a straight line PPF how can you tell which country has the comparative advantage
the country with the shallower gradient has the comparative advantage in the X-axis good
the country with the steeper gradient has the comparative advantage in the y-axis good
3 reasons to specialize in production
- Export led growth and FDI
- Lower prices (increase international competition
- Lower prices for consumers
MACRO OBJECTVIES
3 reasons why a country may have comparative advantage
- Quantity/Quality of FOP’s
- Tech and investment
- Geographically strategic location
What is a pattern of Trade
How goods and services flow between countries and who trades in them
4 reasons for Patterns of Trade
- comparative advantage
- Trading blocs
- Protectionism
- Transport costs/Geolocation
3 Assumptions in comparative trade theory
- Perfect info
- low transport costs
- No EOS/Innovation
what is Free Trade
Trade of Goods and services without restrictions
effects of free trade
Macro objectives
unemployment (sunset/emerging industries)
investment rate (diffusion of ideas, profit)
CA (export led growth)
what is protectionism
the practice of impleading free trade in order to protect domestic interest
5 Types of Protectionism
- Exchange rate devaluation
- Tarrif
- Quota
- Domestic Subsidies
6 reasons for protectionism
- Protect infant/sunset industries
- protect against dumping
- protect domestic employment
- reduce CA deficit
- Avoid overspecialization
- To rase revenue in a developing economy
Macro objectives
effects of protectionist policies
(same as the reasons for protectionism)
- inefficiency
- protects industry
On a free trade diagram how is it shown that world supply is more efficient than domestic supply
MC (world) = 0
MC (domestic) >0
2 evaluation points when implementing tariffs
- is supply and demand elastic or inelastic?
- size of the tariff?
what is an import quota
Quantity limit placed of the number of imports
what is a trade subsidy
a subsidy given to domestic firms in order to sell at a lower price to therefore increase international competitiveness
2 Key facts about the WTO
- 166 members
- 98% of all trade
3 functions of the WTO
- set/enforce free trade rules
- resolve disputes
- provide negotiation forum for deals and trade liberalization
