International Economics Exam Flashcards
(105 cards)
1
Q
Economics as whole explores…
A
the behaviour of financial markets, interest rates, exchange rates and stock prices.
2
Q
Economics as a whole examines the reasons why some people or countries have…
A
high incomes while others are poor, it goes to analyse ways that poverty can be reduced without harming the economy.
3
Q
Overall, Economics as a whole is the study of…
A
How societies use scarce resources to produce valuable goods and services and distribute them among different individuals.
4
Q
What is the economic problem?
A
Goods are scarce and society must use resources efficiently.
5
Q
Microeconomics is…
A
the study of individual entities such as markets, firms and households.
6
Q
Macroeconomics is…
A
the study of the overall performance of the economy on a national, multi national and/or global scale, as well as how central banks manage money and interest rates.
7
Q
What type of approach do economists use?
A
A scientific approach.
8
Q
How is the scientific approach used by economists?
A
It involves observing economic affairs and drawing upon statistics and historical records.
9
Q
What is positive economics?
A
describes facts of an economy and can be resolved by reference to analysis and empirical evidence.
10
Q
What is normative economics?
A
Involves ethical precepts and norms of fairness, and can be resolved only by discussions and debated.
11
Q
What are the three big problems of economic organisation (the economic problem)?
A
What to produce?
How to produce?
for Whom to produce?
12
Q
What are the three different economic systems?
A
A Market economy
Command Economy
Mixed economy
13
Q
What is a market economy?
A
Individuals and private firms make the major decisions about production and consumption.
14
Q
What is the extreme version of a market economy called?
A
Laissez-faire economy
15
Q
What is a command economy?
A
A system where the government has full control and makes all the decisions about production and distribution. They own most means of production and decides how the output of goods is divided in the country.
16
Q
What is a Mixed economy?
A
An economy that shares both free market and command economy systems at a balance.
17
Q
What is the production process?
A
The process that primary materials (raw materials) go through until they become goods that can satisfy consumers.
18
Q
What is the primary sector of the economy?
A
Includes activities related to the collection of raw materials from natural resources, such as agriculture, mining, fishing, etc…
19
Q
What is the secondary sector of the economy?
A
Companies involved in manufacturing, building and processing said materials obtained from the primary sector.
20
Q
What is the Tertiary sector?
A
All activities that provide services directly such as banks, transport, insurance, finance and entertainment.
21
Q
What are the three factors of production? (FoP)
A
Land (natural)
Labour
Capital
22
Q
What is Land (natural) as a FoP?
A
Includes all components obtained through nature and land (raw materials). It can further be separated into renewable and non renewable resources.
23
Q
Examples of a renewable resource
A
solar energy, geothermal energy.
24
Q
Examples of a non-renewable resource
A
coal, natural gas, petroleum, ores.
25
What is Labour as a FoP?
It represents the human capacity and production made by human efforts.
26
What is the activity rate and its formula?
The total active population (people aged 15 and older) divided by the total population, 100.
27
What is the employment rate and it's formula?
The number of population unemployed divided by the active population, x 100.
28
What is capital as a FoP?
Comprised of the tools, machinery and buildings people use to produce goods and services (cars, forklifts, computers)
29
What is productivity?
An economic indicator that measures the efficiency of the factors of production.
30
What is the law of diminishing returns?
It states that if you keep increasing one factor of production while keeping others the same, you will reach a point where further increases result in a decline in output.
31
What is productivity?
A measure of output per unit of input, in order to gauge the efficiency of production.
32
Costs of production are...
the direct and indirect costs businesses face from manufacturing a product.
33
What are the types of production costs?
Fixed costs
Variable costs
Total costs
Marginal costs
34
Difference between fixed and variable costs?
Fixed costs are when the cost to make a product remains the same wether its rate of production changes. Variable is when the cost of production changes as production volume changes.
35
What is marginal cost?
The total cost to produce one additional unit.
36
What are Economies of scale?
When companies increase production while lowering per unit costs. This occurs when production rises at a faster rate than costs.
37
What are Diseconomies of scale?
When the cost of production increases the more production inputs you increase. This occurs when costs rise faster than production rate.
38
Types of Commerce
Leasing
Dumping
Factoring
Franchising
39
What is Leasing?
A temporary transfer or renting of a good/service.
40
What is dumping?
Firms in international trade find foreign demand more elastic than foreign demand so they sell their product at a lower price than at home. This practice is sometimes banned on international trade agreements.
41
What is Factoring?
When a company sells their account receivable in return for money at a discount.
42
What is Franchising?
A joint venture between a franchisor (parent company) and franchisee (business) in which the frachisor sells the right for the business to use their brand name, idea and services to use on your business.
43
What is the difference between Wholesalers and Retailers?
Wholesalers buy large amounts of goods, then store and later resold at small amounts.
Retailers are merchants who purchase from wholesalers to sell to consumers.
44
What is inflation?
An increase in average price levels.
A decrease in the purchasing power of money.
45
What are the three measures of inflation?
- The consumer price index (CPI)
- The Wholesale Price Index (WPI)
- Producer Price Index (PPI)
46
What is the consumer price index?
a measure that examines a weighted average of prices of a basket of common goods with primary consumer needs.
47
Inflation rate formula:
Final CPI value / initial CPI value x 100
48
Causes of inflation
- An increase in avg salary
- circulating in the economy increases spending
- demand pull inflation
-cost push inflation
-shortage of key goods
49
Consequences of Inflation
- Depreciation in currency value.
- Decrease in the purchasing power of money.
50
What are the 3 main market structures?
- perfect competition
- monopoly
- oligopoly
51
Components of a perfect competition market structure
- Large amount of small companies in competition
- selling similar products (homogenous)
- lack price influence (price takers)
- are free to enter and exit the market (low initial setup costs)
52
Components of a monopoly?
- Only seller, dominating the industry
- selling unique products and has no competition
- it's a price setter in the industry
- high barriers to entry (high initial setup costs)
53
Components of an Oligopoly?
-small number of large companies
-selling similar products
- they are price setters but it is competitive and dependent on other companies' strategies
- high barriers to entry
54
What is a Joint venture?
When 2 or more independent companies create an equal affiliation.
55
Different between mergers and acquisitions
Mergers are when two separate entities fuse to become one new organisation.
In an acquisition, one entity takes over the other.
56
What are reasons that justify mergers and/or acquisitions? (3)
- Economics of Scale
- fiscal benefits
- complementary resources
57
What are reasons companies would choose to undergo mergers or acquisitions?
- Access to new markets
- Diversification
- Decrease in business risk
- Increase in market share (most important one)
- Efficiency gains (second most important one)
58
Why is an increase in market share so important for the merger/acquisition of two companies?
- Increased profitability eve without efficiency gains
- higher prices and corresponding profits due to higher market power
- strong sector concentration.
59
Why is efficiency gains so important for the merger/acquisition of two companies?
- improves the ability to achieve cost savings (arising from aggregation/reorganisation of production, reduction of fixed costs due to synergies in R&D)
- lowering administrative costs
- streamlining marketing activities.
60
What is distribution of income?
The way wealth and income is divided among its population.
61
How does the government help with fixing income inequality via distribution of income?
- indirect tax over consumer goods, increasing them for higher earners compared to lower earners.
- Social security systems to ensure health, citizen safety protection from unemployment.
- direct taxes on people's income (proportionally).
62
What can be concluded about the wage gap?
The relationship between highest salary and lowest salary of a country can provide conclusions regarding income inequality.
63
The disposable income of individuals is comprised of...
primary income + Secondary income - taxes and social contributions.
64
What are primary and secondary incomes?
primary: salary + rents + fees + profits
secondary: internal and external transfers.
65
What are internal transfers?
transfers provided solely by the nation being resided on.
66
What are external transfers?
transfers provided by other countries (i.e. working in another country remotely)
67
What are taxes?
taxes are contributions paid by people by law to be used by the government, directly or indirectly.
68
What is the difference between direct and indirect tax?
Direct is when the taxpayer pays directly to the government based on income.
- Indirect is when they are passed down to another person or group by a business (ex. VAT or IVA)
69
What are the main two ways people use their income?
In consumption or savings.
70
What are interest rates?
The amount a lender charges a borrower, usually a percentage of the initial amount loaned.
71
What are the two classifications of financial institutions?
Monetary and non monetary
72
What are monetary financial institutions?
Institutions that receive deposits and create money (banks)
73
What are non monetary institutions?
institutions that can't receive deposits or create money, but can give credit (lenders)
74
What is the role of the european central bank?
- Manage the euro, making sure its stable and meet political and monetary requirements.
- Comprised of governors of central banks across all European countries
- Managed by Banco Central Europeu.
75
What does Banco Central Europeu do?
- Fix interest rates
- manage reserves
- authorizes the emission of euro bills
76
What is the main role of Banco de portugal?
- ensure stabilities of prices
- promote stability in the Portuguese financial system
- Supervise credit institutions.
77
What is the Lorenz curve?
A graphical representation of income inequality, by measuring percentiles of the population against commutative income.
78
What are substitute goods?
When two alternative goods can be used for the same purpose, and when the price of one good increases, the demand of the other good increases
79
Examples of substitute goods
Tea and coffe
Smartphones
Ride sharing apps
Cereal platforms
80
What are complementary goods?
products that are often used together, and when the price of a good increases, the demand of the other good will increase.
81
Examples of complementary goods
Tennis rackets and tennis balls
Gaming Consoles and video games
82
What affects consumption?
- Bank and credits
83
What are externalities?
A cost or benefit of using a good in which it's effects are also enjoyed/suffered by a third party.
84
What is consumerism?
When individuals acquire goods and services beyond those necessary for survival or for a display of status.
85
What are the three methods to calculate the value of production?
Income method
Output method
Expenditure method
86
What is the Output method?
he total value of goods and services produced during a specific period of time.
87
What is the Income method?
how the income from labor and capital generated in production activities was distributed among various agents
88
What is the Expenditure method?
Shows the spending done in different sectors and how the income was distributed.
89
What are the components of the expenditure method?
Private consumption (C)
+
Investment (I)
+
Government expenditure (G)
+
Net Exports (exports - imports) (X)
90
what is The world trade organisation?
A series of negotiations to debate the handling of tariffs, antidumping measures and other non tariff barriers.
91
WTO has as their main objective:
- level quality of life and income
- economic growth
- Employment sustainability
- proper natural resource use
- Facilitate access for less developed countries for international trade
92
The WTO are able to:
- Command commercial agreements
- streamline commercial negotiations
- cooperate with other organizations
93
What is International Trade?
The commercial practice of trading with other nations and countries.
94
Why was there a rapid increase in international trade?
- the globalization of exchanges
- Existence of economic interests
- increase in international exchanges
-developing negotiations and individuals nationally
- Increase of tourism
94
The flux of goods and services out and in of a country are recognized as...
Exports and Imports
95
Why are exports and imports measured in a net sum manner?
It remains in balance to allow the balance of payments to be used
96
What is the balance of payments?
A record of transactions between residents and non-residents during a given period.
97
From a macroeconomics perspective, The balance of payments remains as a very helpful tool for...
The analysis and understanding of a country's economic situation.
98
What is the current balance?
A record of a country's international transactions with the rest of the world. It encompasses goods, services, income and transfers.
99
The intervention of the government in economic activities are to aid in...
- Promote efficiency in the use of resources
- To aid in combating externalities
- The existence of public goods
- Equality
- Stability
100
What instruments can the government use to achieve their goals?
- Planning, setting economic and social goals to reach, and lead the country to meet said goal.
- politics
101
EU: What is the European Union?
A collection of countries in europe that pay membership dues, vote on laws they all must follow and have certain equal rights among countries. They share a central currency among EuroZone members.
102
What are the requirements for the eurozone participation?
1. Inflation less than 1.5% higher than the avg of the lowerst members
2. Debt to gdp ratio less than 60%.
3. gov. deficit less than 3%.
103
What are the Advantages of the euro currency?
- Facilitates price comparison of goods among countries
- Facilitates tourism as currency exchange d bypassed.
-Salaries, savings and reforms are stable as the currency is stable.
104
Disadvantages of the Euro currency?
- Information overload for consumer due to dual pricing
- High investments in ATMs, phones, parking meters, cash registers
- Dual accounting and the use of two different payment systems.
- Loss of ability to use exchange rate policies to increase international competitiveness.
