international economics (term four)

Question 1

what if Australia didn’t trade ?

Answer 1

no imports - less choice

no exports - less economic growth & employment

no competition - higher prices

shortages & surpluses of products

inefficiency

decreased output (GDP)

economic contraction

Question 2

why is trade important ?

Answer 2

access to imports - increased consumer satisfaction & standard of living

markets for exports - increased economic growth & employment

specialization - increased output

economies of scale

Question 3

trade surplus

Answer 3

exports are greater than imports - prima facie, the economy should expand

Question 4

trade deficit

Answer 4

imports are greater than exports - prima facie, the economy should contract

Question 5

why nations trade ?

Answer 5

supplement their own resources

compensate of differing factor endowments (unequal distribution of resources, human skills, capital & technology)

desire for an improved standard of living

profit motive

Question 6

stakeholders positively impacted by international trade

Answer 6

economy - economic growth

consumers - more choice & lower prices

workers - job opportunities

businesses - imported capital & incentive to compete

exporters - economies of scale

government - more taxes

Question 7

stakeholders negatively impacted by international trade

Answer 7

workers & local businesses - workers become unemployed if local businesses cannot compete with foreign competition

Question 8

stakeholders positively impacted by multi-national companies

Answer 8

consumers (short-term) - lower prices (mnc’s achieve economies of scale & innovate)

workers - job opportunities (local employment in host countries)

Question 9

stakeholders negatively impacted by multi-national companies

Answer 9

consumers (long-term) - higher prices (mnc’s monopolize & gain market share)

government - less taxes (mnc’s transfer price to avoid tax)

environment - degradation & destruction

Question 10

transfer price

Answer 10

price charged for goods between two subsidiaries of one multi-national company located in different countries

Question 11

complexity of international trade

Answer 11

different currencies have different purchasing powers & levels of inflation

different cost structures have different methods of production, domestic market sizes & transport costs

different social & technical aspects have different customs, tastes & requirements

different government policies have different motives for personal profit & welfare leading to inequality

Question 12

sustainable economic growth

Answer 12

rate of growth that increases production, consumption & income (current & future standards of living)

Question 13

full employment

Answer 13

socially acceptable rate of unemployment (everyone who wants a job has a job)

Question 14

price stability

Answer 14

little variation in prices (minimal inflation)

Question 15

sustainable development

Answer 15

rate of growth that cares for the environment & future generations

Question 16

internal stability

Answer 16

state of the economy where there is full employment & price stability

Question 17

external stability

Answer 17

state of the economy where financial obligations to the rest of the world are met through government policy measures

Question 18

composition of trade

Answer 18

what we trade

Question 19

direction of trade

Answer 19

where & with whom we trade

Question 20

primary products

Answer 20

products with minimal to no processing

no price mark-up

(e.g. agriculture)

Question 21

simply transformed goods

Answer 21

intermediate goods used as inputs for other products

minimal price mark-up

(e.g. leather)

Question 22

elaborately transformed goods

Answer 22

finished products

high price mark-up

(e.g. vehicles)

Question 23

percentage change expression

Answer 23

[(new - old) / (old)] x 100

Question 24

opportunity cost expression

Answer 24

(give up) / (gain)

Question 25

absolute advantage

Answer 25

a nation's ability to produce at a lower direct resource cost than another nation

Question 26

comparative advantage

Answer 26

a nation's ability to produce at a lower opportunity cost than another nation

Question 27

adam smith's theory

Answer 27

trade should only occur if two nations have absolute advantage in two separate products

Question 28

david ricardo's theory

Answer 28

trade should occur even if one nation has absolute advantage in both products

Question 29

absolute & comparative advantage assumptions

Answer 29

two nations producing two goods or services fixed technology perfectly mobile resources no transport costs

Question 30

heckscher-ohlin theory

Answer 30

composition & direction of trade are based on factor endowments nations exports products where they have large factor endowments nations import products where they have small factor endowments

Question 31

competitive advantage

Answer 31

a nation's ability for its industries to innovate & upgrade

Question 32

diamond of national advantage

Answer 32

factor conditions - advantage in factors of production (e.g. infrastructure investment or specialized workforce training) demand conditions - developed domestic market (clear view of consumer demand to help anticipate international market needs) related & supporting industries - efficient & internationally competitive supplier industries firm strategy, structure & rivalry - company creation, management & domestic rivalry need to be disciplined, flexible & conducive to innovation

Question 33

globalization

Answer 33

growing integration of national economies to form a single interdependent global economy

Question 34

globalization positives

Answer 34

lower prices - economies of scale, lower transport costs & lower labor costs greater variety - freedom of trade & improved communication

Question 35

globalization negatives

Answer 35

inequality - widening gap, host countries abandoned & local businesses deposed environmental harm - degradation & pollution

Question 36

globalization measures

Answer 36

trade intensity capital flow exchange rate law of one price

Question 37

trade intensity expression

Answer 37

[(new - old) / (old)] x 100

Question 38

multi-national company

Answer 38

enterprises that operate in more than one country but are managed from a home country

Question 39

multi-national company characteristics

Answer 39

twenty-five percent of revenue derives from outside the home country headquarters based in the home country offices & workers in host country

Question 40

why multi-national companies exist ?

Answer 40

ninety percent of global demand is not met through local supply

Question 41

why location of natural factor endowments are important ?

Answer 41

multi-national companies source from nations with an abundance of resources to produce (e.g. mineral reserves or cheap labor)

Question 42

successful examples of digital & other innovation

Answer 42

l'oréal's digital try-on app for make-up philips innovating low-cost, solar-powered solutions for low-income populations

Question 43

how infrastructure integration including logistics are important ?

Answer 43

multi-national companies need efficient methods of getting the product from the source to the consumer e.g. distribution centres

Question 44

government incentives

Answer 44

financial incentives include grants or loans fiscal incentives include lower tax rates or tax holidays other incentives include subsidies or free trade zones

Question 45

trade theory link to multi-national companies

Answer 45

location of natural factor endowments : hecksher-ohlin theory - factor endowments comparative advantage - lower opportunity cost digital & other innovation : competitive advantage - factor conditions, related & supporting industries infrastructure integration including logistics : competitive advantage - factor conditions, related & supporting industries government incentives : competitive advantage - demand conditions, firm strategy, structure & rivalry comparative advantage - lower opportunity cost absolute advantage - lower direct resource cost

Question 46

positives of technological change on multi-national companies

Answer 46

production is faster & cheaper economies of scale can be achieved promotes innovation (competitive advantage)

Question 47

negatives of technological change on multi-national companies

Answer 47

loss of jobs

Question 48

causes of tax minimization strategies for multi-national companies

Answer 48

high tax rates opportunity to profit shift to low-tax countries through transfer pricing

Question 49

effects of tax minimization strategies for multi-national companies

Answer 49

loss of tax revenue for governments leads to heavier tax on alternative sources (e.g. individuals)

Question 50

transfer pricing link to tax avoidance by multi-national companies

Answer 50

multi-national companies manipulate the transfer price to profit shift into low-tax jurisdictions

Question 51

how resolution of global political conflicts impact multi-national companies ?

Answer 51

increased global trade more opportunity to maximize efficiency & achieve economies of scale access to more factor endowments

Question 52

why consumer information requests from mult-national companies are changing ?

Answer 52

consumers want increased accountability & transparency from multi-national companies (e.g. where their product came from, who made their product, how their product was made & how their product impacts the environment)

Question 53

world trade organization

Answer 53

only international organization dealing with the rules of trade between nations 164 member states promote free trade by lowering tariffs & barriers, police trade agreements, mediate trade disputes & impose trade sanctions ensure trade flows smoothly, predictably & freely

Question 54

international monetary fund

Answer 54

organization fostering global monetary co-operation & securing global financial stability 189 countries economic surveillance & reporting, providing loans to build international reserves, to stabilize currencies & to restore conditions for strong economic growth, work with governments to improve economic growth, to create jobs & to modernize economic policies & institutions ensure the system of exchange rates & international payments that enable countries to trade is stable

Question 55

the world bank

Answer 55

five institutions funding developing countries 189 member countries provide technical & financial support to developing countries, end extreme poverty & increase the income of the poor end extreme poverty & promote shared prosperity in a sustainable way