international economics Flashcards
(44 cards)
what is the definition of international competitiveness
the ability of a nation to comepete successfully overseas in order to sustain improvements in living standards
what 3 factors determine a country’s competitiveness
price competitiveness
- if not price competitive relative to other countries then nation suffers to sell and compete
non price competitiveness
- if price competitiveness lacking, or unit labour costs are high, non price factors can allows country to become competitiveness overseas
ability of nation to attract FDI (factors of prod)
- capital, businesses, workers from abroad
what are the 3 main measures of competitiveness
- unit labour costs !!
total labour costs divided by output
-if output increases and TLC remain constant, drives down LB, keeping prices relatively low and improving price competitiveness
global competitive index
terms of trade
- index of export prices divided by imports of import prices
x 100
- greater number = better terms of trade condition
what is the definition of globalisation
process in which national economies have become increasing integrated and interdependent
what are the causes of globalisation
trade liberalisation
trading blocs
growth of MNCs
technological advances
mobility of labour + capital
what are the benefits of globalisation
increased international competitiveness (integrated) = DECREASED pressure on PRICES = higher efficiency =lower costs
- consumer = greater welfare + consumer surplus + greater market size = choice + quality
- businesses = access raw materials through lower prices and costs
benefits of trade occur
- deepening of trading blocs and WTO
- better growth and tax rev + econ dev
- greater employment (firms grow in size, potential increase = increases workers, and higher incomes)
- larger economies of scale (market size bigger, can exploit size, increase output and lower costs = higher profits - innovation)
what are the problems of globalisation
greater inequality
- demand for unskilled labour has decreased in developed countries, increasing the earnings gap between highest-paid and lowest-paid workers
- BUT inequality between countries has fallen
higher structural unemployment
- globalisation happening fast, more integrated, struggle to compete with other nations = businesses going into decline = structural unemployment (losing incomes)
ennv costs - economic growth has led to foreign firms taking advantage of depleting resources = degraded natural resources (rivers - dumping waste)
- lack of sustainability
what is absolute advantage
a country can produce more of one product than another country can with the same amount of resources
what is comparative advantage
can produce a good with a lower opportunity cost than that of another country
what are the assumptions made in the law of comparative advantage
- constant returns to scale (PPFs drawn in straight lines)
- no transport costs
- no trade barriers
- perfect mobility of FOP between different uses
- externalities ignored
what does the law of comparative advantage state
a country should specialise in the production of a good or service at the lowest opportunity cost
- then trade (to be beneficial there should be a suitable exchange rate)
what are the limitations of comparative advantage
no transport costs
- countries may have huge transport costs which can distort comparative adv (countries further away will have to pay lots to receive the good)
no economies of scale
- but if does have CA and supply world market, they may benefit from huge economies of scale + exploit adv for longer
- BUT a country w/o CA, able to exploit EOS better than country with CA = DISTORTS CA (EOS = lower LRAC = lower prices)
rate of inflation - tariffs + quotas put on goods where has CA, selling abroad is made difficult = distorts CA
exchange rate
- strong CA but strong exchange rate = distorts CA
advantages of specialisation and trade
- higher living standards + increased employment = increased world output
- lower prices (= higher consumer surplus + choice)
- transfer of management expertise and tech
- EOS
disadvantages of specialisation and trade
- deficit on the trade in goods and services balance if country’s goods and services are uncompetitive
- danger of dumping (firms in countries with surpluses of goods ‘dump’ them on other countries - local products go bankrupt - LR more dependent on M)
BOTH result in increased UNEMPLOYMENT
what are the Short run factors influence the terms of trade
change in demand/ supply of X/M
- increased demand for exports = increased price = improvement of terms of trade
relative inflation rates
- high = increased price of exports = improvement of terms of trade BUT REDUCE COMPETITIVENESS
changes in exchange rates - stronger / weaker
what does the terms of trade tell a country
the quantity level of exports that need to be sold in order to purchase a given level of input
- decreased terms of trade = price of given basket of exports can buy less imports than before
what causes a decrease in the terms of trade
increase price of imports
OR
decrease price of X
what are the LR factors that can influence the terms of trade
incomes
- developed countries grow + richer = incomes rise, demands for manufactured goods rise (luxury goods - income elastic)
- primary commodities, demand will not rise as near as much as rise in what they import (developed countries export commodities) = LT DETERIORATION
productivity + tech
- if both rise = both lower costs of prod = lower prices in exports
= DETERIORATION but IMPROVES COMPETITIVENESS
what is a trading bloc and one example
group of countries, usually within a geographical region, designed to significantly reduce/ remove trade barriers between themselves
- COMESA (common market for Eastern and Southern Africa)
what are the different types of trading blocs
- free trade areas (trade barriers are still removed between them but each member can impose trade restrictions on non - members
customs unions - free trade between countries combined with common external tariff on goods from countries outside customs union
common market - same as customs unions + free movement of factors of prod (labour) between member countries
monetary unions - custom unions that adopt a common currency (eurozone)
what are the costs of regional trade agreements
trade diversions - occurs when trade is diverted from a more efficient exporter (low cost producers outside bloc) towards a less efficient producer (high-cost producers within the bloc)
distortion of CA
- trade barriers against non-members likely to cause a decrease in specialisation + fall in world output
what are the benefits of trading blocs
trade creation
increased FDI (TNCs gain unrestricted access in selling goods to consumer in bloc)
increased economic power
what are the key roles of the WTO (world trade organisation)
- promote free trade
- settle trade disputes between member countries
reasons for restricting free trade
- prevent dumping (product sold abroad to below average cost/ below price charged to domestic consumers)
- reduce unemployment
- reducing risk of disruption resulting from problems in global economy
- limit monopoly power of global companies
