topic 1 Flashcards

Question

Multinational/TNC's definition

Answer 1

activities and resources dispersed globally with an integrated independent network of worldwide operations from supply to chain connections - e.g raw materials from one country, product manufactured in another, sold to multiple other countries - each step in done in subsidiaries in different countries - called production through vertical integration/offshoring

Answer 2

view world as a single marketplace and attempt to standardise products - have a parents nation (where the cooperation originated) and host nations (nations the cooperation sells in) - these cooperations make up 70% of the world's foreign direct investment (FDI)

Answer 3

portion of a business that does a specific task and is directly controlled by the business

Answer 4

- expand revenue - reduce costs - source raw materials - control key supplies (reason for global expansion) - control of processing - achieving EOS/integration (through cutting production costs by using different countries factor endowments and by standardising products)

Answer 5

- information technology revolution - computing and digital technologies - internet into households

Answer 6

- increase in productivity of labour and capital - EOS - spread of e-commerce - rapid global diffusion of technologies

Answer 7

- improving public transport and roads (transport G&S and labour quicker , cost and time efficient) - containerisation reduces shipping cost (standardised containers are efficiently unpacked by large robots reducing human cost and error) - infrastructure

Answer 8

leads to changing pattern and division of labour in the production or provision of G&S

Answer 9

world divides into different regions which specialise into primary vs tertiary sectors - developing economies = primary industries - merging economies = secondary industries - developed economies = tertiary industries

Answer 10

TNC's with their global reach set up overseas subsidiaries seeking cheaper labour options in major developing countries to increase profits - EOS

Answer 11

closing internal departments and choosing more efficient or expert external independent businesses contracted to run that section of your business (e.g IT) - EOS

Answer 12

physical movement by humans from one area to another - movement of unskilled workers is very common - emigration = movement out - immigration = movement in

Answer 13

a worker who has a special skill, training, knowledge they can apply to their work

Answer 14

to counter the domestic skill shortage (e.g nursing, doctors, etc.) - could result in Brain Drain (country waste money to educate citizens and they leave to work elsewhere)

Answer 15

buying/selling transactions of G&S across national borders - trade in the TRADABLE SECTOR

Answer 16

PURCHASE of foreign G&S from abroad that leads to the SELLING of AUD by Australian importers (pay in other currencies) - raises SOL - cheaper products - more choice

Answer 17

SALE of Australian G&S to buyers from other countries leading to the BUYING of AUD by foreigners (pay for Aus items)

Answer 18

international trade vs domestic trade

Answer 19

- rising tide of globalisation benefits all (some more than others) - Aus can't produce all the G&S required due to limited skills and available resources - countries specialise in what they are good at and trade the difference

Answer 20

highlighted by the principles of comparative and absolute advantage - each country should produce the product with the least opportunity cost --> have the most comparative advantage in - countries should also produce products they have an absolute advantage in compared to other countries

Answer 21

the ability to produce a greater quantity of the one good or service with the same constraints than another country (lower cost) (e.g aus and coal)

Answer 22

where one country can produce multiple products with low cost in comparison to others (absolute advantage) but chooses to produce the one with the least opportunity cost - efficient use of resources and specialisation allows other countries to specialise in other things

Answer 23

quality and quantity of a country's supply of resources (FOP-CELL) a country possesses and can exploit for manufacturing - differing factor endowments differ the products countries specialise in - countries with large endowments = more proft - must have sound institutions (no corruption) to efficiently use resources

Answer 24

I - international competitiveness (importer vs domestic price competition, lowers prices, increases innovation and quality) S - standards of living (increase choice, quality, income, GDP and low prices) E - efficiency in resource allocation through specialisation and comparative advantage to achieve EOS E - employment (increase productivity and exporting at lower costs increases sales and output)(increase in employment bc labour is a derived demand)

Answer 25

- growing inequality (development gap) - structural U/E (low-skilled workers being left behind in transition from manufacturing to tertiary) - financial contagion (countries are too dependent on others so swings can easily be transfered = global BC) - loss of sovereignty (gov looses control) - environmental damage (increase in production therefore pollution)

Answer 26

1. valid arguments: justified as the long term benefits >>> the short term costs 2. questionable arguments: limited validity as the short term benefits <<<< the long term costs 3. Incorrect arguments: based on INCORRECT theory

Answer 27

VALID: - infant industry - prevents dumping - diversified economic base QUESTIONABLE: - protect domestic jobs - greater externalities - national security

Answer 28

a new domestic industry that hasn't had the time to reach EOS by operating at the technical optimum and initially unable to compete with more mature and cheaper imports

Answer 29

SHORT TERM: to grow and reach EOS infant industries need temporary protection until they reach EOS - short term costs << long term benefits (consistent with comparative advantage) - argument used by LDC's DISADVANTAGE: rent-seeking due to the protection from imports - companies get lazy instead of working toward EOS - e.g Aus' auto industry

Answer 30

increase variety of G&S produced in an economy (opposite of specialisation, contradicting comparative advantage basis) by increasing protections on G&S they want to produce

Answer 31

RISKS OF SPECIALISATION fluctuations in market price in major exports will hugely effect revenue and incomes therefore REWARDS OF DIVERSIFICATION - putting in money to these G&S will diversify skills (primary to manufacturers), employment, capital tech usage to achieve EOS - after EOS is achieves, protections will be removed and domestic will compete against overseas - short term benefits <<<< the long term costs

Answer 32

looking after NATIONAL INTEREST by protecting industries that are considered to be IMPORTANT to the future economic growth or citizen protection. (e.g tech, weapons, food, etc.)

Answer 33

practise of selling a good in international markets at a price below their cost of production. since import prices are very low, domestic businesses go bankrupt and since the imports control the market, they will suddenly increase prices - illegal and country should impose tariffs (with approval from WTO) - hard to prove

Answer 34

import restrictions shift consumption from imports to domestic goods (increase in domestic output = decrease in U/E) - however since the country is not specialised in that industry, domestic production in inefficient (cost increases, productivity decreases, inflation increases, income decreases) - protections will cause other countries to retaliate

Answer 35

instead of taxing other countries to discourage polluting production focus on reducing your own nations emissions (e.g China's 6% tariff on Aus coal)

Answer 36

Any government action which aims to either hinder foreign competitors of domestic firms or which provides an advantage to domestic exporters and for domestic import competing firms. Main types: - tariffs - quotas - subsidies - embargoes - quarantine restrictions

Answer 37

a government tax (given in %) paid by the importer on imported goods (i.e import tariff, customs tariff, etc.) - usually eliminated in free trade agreements - importers pass tax onto consumers so domestic customers pay for tariff

Answer 38

a fixed amount of imported goods allowed to enter the country in a set period of time - quota graphs present IMPORTS supply and demand - increased quota = less protection

Answer 39

tax payer money ($ per unit) given to domestic producers to offset higher production costs - increasing international competitiveness - increasing exporter chances of succeeding in international markets

Answer 40

a government order which stops trade with a particular country

Answer 41

1. price effect (increase) = inflationary pressures 2. import effect (decrease) 3. protection/reallocative effect (how much domestic producers benefit) 4. consumption effect (consumer consumption effect) 5. revenue effect (government revenue) 6. redistribution effect (consumer to producer surplus) 7. retaliation effect

Answer 42

domestic producers gain greater market share while importers market share decreases

Answer 43

consumer consumption decreases as price increases

Answer 44

government gets more revenue from increases in tariffs

Answer 45

consumer surplus gets redistributed to producer surplus

Answer 46

domestic production increases (more money given therefore more output) domestic price and consumption stays same

Answer 47

domestic production increases (more money given therefore more output) domestic price decreases and consumption increases

Answer 48

- with Pw consumers pay same price - with Pw no consumption changes - if no Pw price decreases - can be a short, temporary government policy (reviewed annually as part of budget) - subsidies are less visible, no retaliation effect - lower domestic cost for production - increase domestic industries international competitiveness - subsidies redistribute income (tax)

Answer 49

- raise prices (Pw) - decreases consumption - are more permanent as part of long term trade agreements or policies and hard to remove) - tariffs are visible aggression against a country (retaliation) - tariffs are a regressive tax

Answer 50

Import demand (negatively sloped curve) and Import supply (perfectly inelastic line) Intersection = price at equilibrium Increasing quota = move right, decreasing quota = move left

Answer 51

- quota number should be the same distance between domestic supply and demand / move up Pw to see equivalent tax - start from furthest point of Pw and demand intersection and go back the quota amount / measure the distance between the domestic supply line and the quota line / draw a line

Answer 52

self-imposed trade restriction whereby an exporting country limits the quantity of G&S it exports to a specific country to - avoid trade wars - give country a degree of control - encourage domestic selling

Answer 53

put in place by government to maintain certain standards of domestic production (i.e employment, culture, etc.)

Answer 54

- gain to domestic producers = increase cost of production, decrease in efficiency, increase in price - income redistribution worsens - foreign producers are worse off (government's retaliate) - domestic society (consumers) and global resource allocation lose under any form of trade proctection

Answer 55

- organisations - agreements - blocs - forums

Answer 56

- world trade organisation (WTO) - international monetary fund (IMF) - world bank (WB) - united nations (UN) - minor - organisation for economic co-operation and development (OECD) - minor

Answer 57

a forum which establishes trade liberalisation 'rounds' between member nations at a global or regional level and settles trade disputes between members - to join a nation must agree to liberalise trade principles and rules (multilateral agreement btw 164 nations)

Answer 58

- no discrimination --> all countries have 'most favoured nation' status - national treatment --> don't discriminate between foreign products - free of barriers --> bring down trade barriers through negotiation - predictable --> trade barriers can not be arbitrarily raised - increased competition --> discourages dumping and export subsidies

Answer 59

- originated as GATT (general agreement on tariffs and trade) - uruguay round (1986-1994) EFFECTIVE - doha round (2001-2016) INEFFECTIVE

Answer 60

- GATT was created after WWII to reduce trade barriers in goods (focused on removing tariffs) - WTO was established after the 2001 Uruguay round --> focus on trade of G&S and intellectual property (e.g tech, inventions, designs, etc,)

Answer 61

- in addition to GATT principles, broader trade in agriculture, services, intellectual property and investments - faster growth, decrease in development gap, cheaper goods

Answer 62

- disagreements on further reducing agriculture protections, lowering tariffs on manufactured goods, reducing service trade restrictions - lower barriers and fairer trades --> ED for developing countries --> Nairobi package 2015 - tensions between developing and developed countries (EU, Japan, US vs BRICS)

Answer 63

- WTO can't eliminate all tariffs (allows 10% tariffs + more if violating nation + negotiations of FTA) - Doha failure - WTO significantly influenced by bigger countries (EU, US, China) which delay compliance - rise of BRICS weakens WTO power - rise of anti-globalisation sentiment due to increasing inequality, structural change, fear or immigration, etc. - nature of contemporary capitalism changed to migrant workers, unregulated capital flow - EU has veto power

Answer 64

group of emerging countries (brazil, india, russia, china, south africa, argentina, egypt, ethiopia, iran, saudi and UAE) which promotes peace, security, development and co-operation

Answer 65

- more trade - dispute resolutions for LDC's - 2015 Nairobi package - uruguay round

Answer 66

is an international financial institution which provides low interest loans and interest free grants and technical assistance for developing countries' projects (e.g education, agriculture, etc.)

Answer 67

- reconstruction assistance and humanitarian relief (rebuild after disasters and conflicts) - infrastructure development projects - millennial development goals --> breaking poverty cycle in LDC through debt relief

Answer 68

set up in 1944 Bretton Woods conference as the IBRD (international bank of reconstruction and development) and IDA (international development association) assisted rebuild after WWII

Answer 69

- dominating by EU, China, US --> voting power based on % of financial contribution to budget - developing countries have small voice in loans --> Washington consensus' more suitable to developed countries - promotes interests of foreign investments/TNC's - immunity for workers - AIIB weakens WB power

Answer 70

interest repaid to developed economies on foreign loans to poor countries

Answer 71

Asian infrastructure investment bank is a multilateral development bank set up and funded by Chinese government to support the building of infrastructure in the Asia-pacific region - last resort lender - slow economy + high interest = danger for borrower

Answer 72

- debt relieved for 36 countries under HIPC inititiave since 1996 ($100B saved) - climate funding in 2015 paris agreement

Answer 73

international monetary fund is a global organisation that works to achieve sustainable growth and prosperity for all 190 members (US, Japan, AUS, etc.)

Answer 74

ensure stability of international monetary system - stabilising exchange rates - facilitating international payment systems provide emergency funds to assist: - international monetary co-op - financial stability - international trade - sustainable EG, Emp - reduce poverty

Answer 75

special drawing rights are neither a currency nor an IMF claim but a potential claim on freely tradable currencies of IMF members (chinese renminibi, Japanese yen, British pound, Euro, USD)

Answer 76

- created in 1969 to support fixed exchange rate system - gives a member central bank access to IMF funds to exchange for foreign domestic currencies - SDR interest rate same for lending and borrowing - shift to floating regime (gov buying from international markets) weakens SDR's

Answer 77

- structural adjustment policies --> mandating westernised policies - austerity measures --> IMF imposes policies to decrease countries gov spending to ensure debt is paid back

Answer 78

- COVID-19 assistance - guaranteed debt relief for poorest 25 countries

Answer 79

groups of countries (e.g WTO, IMF, WB, OECD) who come together for general issues related to global trade to - establish trade rules - promote trade - assist with economic co-op

Answer 80

organisation for economic co-op and development (1961) defined as a forum for 36 countries aiming to stimulate economic progress and world trade - aus is a member

Answer 81

- strong past influence - weakening gradual influence (due to anti-globalisation forces)

Answer 82

bilateral (2 countries), regional (geographically close) or multilateral (more than 2) agreements to bring down trade barriers btw countries - members are free to make agreements with other countries (no trade diversion --> can trade with other countries) - e.g AUSFTA (Aus and US FTA made in 2005 in creation of E3 visa) CERTA, ASEAN, APEC, WTO

Answer 83

- inefficiencies --> countries don't buy from low-cost producers with tariffs instead buy from high cost producers with FTA's - secrecy --> agreements can be negotiated in secret - loss of gov revenue --> no tariff - high regulations --> e.g rules of origin

Answer 84

a country that doesn't have an FTA with another sells their products through an intermediate subsidiary in a country they both have FTA's with - rules of origin is administrative paperwork to avoid this

Answer 85

group of countries reaching a common agreement on a broad range of trade issues related to economic integration (i.e lowering trade barriers) - negotiate further agreements as a bloc - nations of similar geographic location

Answer 86

reduce trade barriers to: - increase competition - increase consumer choice (increase SOL) - export market access freer movement of FOP - increase employment - inefficient use of resources central high court and parliment

Answer 87

european union is a supernational political and economic bloc with 27 members

Answer 88

- single trading policy --> members trade with no tariffs but aren't allowed to negotiate FTA's outside of EU - single market policy --> removal of fiscal, technical, physical barriers allowing free movement of goods, capital, services, people - Euro zone --> 19 EU countries who use Euro --> NOT fiscal union

Answer 89

association of southeast asian nations is an international government and FTA organisation btw 10 southeast asian countries (thailand, indonesia, myanmar, etc.) - moving toward a potential bloc (Asian economic community) in 2023 - difficult integration due to cultural political and social differences

Answer 90

trans-pacific partnership is a partnership agreement between 11 countries (AUS, NZ, Peru, etc) in 2017 (12 + US in 2016)

Answer 91

weakening government power - decreasing state-owned enterprise - calling government procured good a protection high protection for intellectual property restrict capital flows ISDS tribunal favours foreign investors

Answer 92

regional comprehensive economic partnership is an FTA between 15 countries in Asia-pacific (AUS, NZ, China, Japan, Korea + 10 ASEAN) - US dropped out in 2017 (trump anti-china) - India doesn't want to let go of agriculture subsidies

Answer 93

- tariff reduction - single rulebook - accomodating rules of origin - services trade liberalisation - labour mobility - e-commerce digital trade

Answer 94

G7 - forum of powerful 7 countries (US, Japan, Canada, etc.) G8 - forum of powerful 8 countries G20 - forum of powerful 20 countries (aus is in) discusses economic and political issues - came up with fiscal plan during COVID alliances btw powerful economies weakens power of WTO and UN

Answer 95

Asia-pacific economic co-op is a forum established in 1989 to promote sustainable growth, trade investment and prosperity in Asia-pacific region - 21 countries (US, AUS, Japan, Thailand, etc.)

Answer 96

what one sacrifice/what one gain answer: __ is good A is sacrificed for gain of 1 good B

Answer 97

find the opportunity cost of producing a both products in both countries find which country has the lowest opportunity cost in each product

Answer 98

put product A on x-axis and product B on y axis use rise/run of product A opportunity cost to draw line whichever line has a flatter slope = lowest opportunity cost and comparative advantage

Answer 99

the process (structural changes) to improve standards of living measured by GDP PER CAPITA, GNI PER CAPITA, HDI and A CHANGE in any indicator of economic development (mortality rate, education, etc.) - QUALITATIVE measure of SOL - broader range of things

Answer 100

(UN development programme) - a summary measure or average achievement in 3 key dimensions of human development: - a long and healthy life - being knowledgeable - decent standard of living

Answer 101

income levels vary but what these economies have in common is fast growth income levels/strongest growth rates in the world (5-10%) and favourable prospects/industrialising usually with substantial manufacturing sectors - moving from planned to free market - growing industrial sector

Answer 102

- Physical issues: climate, resources, landlocked - Economic causes: global trading positions, the cycle of poverty - Historical causes: colonialism

Answer 103

Low per capita incomes → low levels of saving → low levels of investment and rates of capital accumulation → low levels of productivity →

Answer 104

the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country.

Answer 105

the flow of money from market to non-market sources - FLOW CONCEPT

Answer 106

the real and financial assets owned at any given point in time - STOCK CONCEPT

Answer 107

is an increase in the output of G&S from an economy, measured through increase in real GDP overtime - key economic indicator - QUANTITIVE measure

Answer 108

- Output - Income - Wealth - Employment - Standards of living

Answer 109

measure of quality of life from a populations access to G&S

Answer 110

difference in real per capita incomes, living standards and quality of life between DC and LDC

Answer 111

- high income/industrialised - newly industrialised - emerging - economies in transition - developing - poor countries

Answer 112

real GDP per capita ($) = real GDP/current population - for ED to occur: population growth < economic growth

Answer 113

- structural change (move away from primary agriculture) - poverty levels (reducing poverty, lower Gini-coeff) - urbanisation (migration from rural to urban) - real GDP per capita - UNHDI

Answer 114

HDI looks beyond GDP to a broader definition of well-being. The HDI provides a composite measure of 3 dimensions of human development: - a long and healthy life - being knowledgeable - decent standard of living

Answer 115

where a household is unable to achieve a SOL relative to the communities average SOL

Answer 116

where a household is unable to achieve the basic SOL

Answer 117

lack of TIPS = lack of EG and ED - Technology (uptake, labour intensity) - Incomes (per person) - Productivity (of labour) - Savings (due to low incomes)

Answer 118

focus on breaking poverty cycle in LDC through: - debt relief - aid - halving absolute poverty by 2015

Answer 119

- Demographics (high population growth, lack of human capital) - Debt (high foreign debt, less savings) - Demand-pull (import inflation - Dualism (dual economy --> wealthy elite set prices, poor must match them) - Demonstration effect (migration demonstrates so everyone migrates)

Answer 120

an urban elite in a formal commercial economy alongside a large traditional rural economy dominated by poverty and agriculture

Answer 121

- structural change - trade system - financial system - technology - aid

Answer 122

- factor endowments (lack of FE to export, low GDP and ED) - financial capital (lack of investment, debt, poverty cycle) - human capital (lack of education, low productivity) - dualist economy (high inequality) - institutions (corrupt politics, no response to make countries better)