Flashcards in Unit 8 Deck (32):
How does a country have an absolute advantage?
If it is able to produce more of a good or service than other countries
How can a country have a comparative advantage?
A country has a comparative advantage in the production of a good or service that it produces at a lower opportunity cost than its trading partners
Give two examples of country's with specialised g/s
Saudi Arabia: has the most plentiful oil reserves in the world, and the tech to extract it
Japan: leading producers of cars - new tech have been used to develop efficient manufacturing systems
Give an advantage of specialisation
Consumers have access to a greater variety of higher quality products across the world
Give a disadvantage of specialisation
A country can be vulnerable if it has to rely on imports to invest in its own domestic energy industries, it will have to import energy from overseas
What is an exchange rate?
The rate at which one currency exchanges for others
What does SPICED stand for?
What is a fixed exchange rate?
The value of the currency is fixed against another currency or group of currencies - it is maintained by the government
What is a floating exchange rate?
Value of the currency fluctuates due to demand and supply
What happens when depreciation occurs in terms of demand and supply?
What happens when appreciation occurs in terms of demand and supply?
What happens to the exports when appreciation happens?
Exports decrease because they are too expensive for other countries to buy
Profits decrease, trade deficit will get worse because imports increase, jobs decrease, NME
What happens to imports when appreciation occurs?
Imports increase from other countries as they are cheaper abroad
Give 3 examples of firms that want a strong pound
Currys PC world
Give 3 examples of firms that want a weak pound
Why would lloyds back want a low pound?
So they can sell more insurance to other countries
What is appreciation?
If the pound buys more of a currency it has appreciated its value
What is depreciation?
If the pound buys less of a currency it has depreciated its value
What happens to inelastic goods in appreciation and depreciation?
Some of our imports are relatively inelastic so therefor when our exchange rate gets stronger there will be very little effect on the volume of imports for these goods
What are import tariffs?
Taxes on types of imports e.g. Taxes on cars imported from Japan
What are import quotas?
Quotas set a physical limit on the number of imports e.g. American cars - hummers
What is administrative complexity?
The government may require importers to fill in time consuming paperwork e.g. Ivory Coast coco doesn't get imported to the UK
What is import licensing?
Governments can grant licences for the import of certain goods -> not granting a license is a type of protection e.g. McDonalds made under license in UK
What are subsidies?
Payments to a domestic producer e.g. Farming fruit so can compete with other imports
What is exchange rate manipulation?
The G can buy or sell its own currency in order to alter the exchange rate
What is exchange rate control?
governments preventing or limiting the amount of foreign exchange to which importers have access
What are embargos?
A complete ban on the import of certain goods e.g. Afghanistani flick knives
What is free trade?
Free trade between member countries I.e. No tariffs, quotas or regulations
What is the WTO?
- formed after WW2 at a work conference designed to ensure peace
- to pursue open boarders - free trade
- the main activities are negotiating a reduction or elimination of import tariffs and other barriers to trade, and agreeing rules on the conduct of trade e.g. Rules regulating to dumping of waste
What are the benefits of free trade?
- trading makes everybody wealthier because they can sell into bigger markets -> increase in jobs -> PME -> economic growth
- free trade enhances the spread of new ideas, new lifestyles and new products
- free trade enhances consumer to buy better quality imports from other countries
- free trade enables people to sell their products to those who are willing to pay the highest price for them. Means that the producer is able to capture a larger proportion of the value of the product
What are reasons for protection?
- to help a new industry grow
- to protect small industries that are important to an economy
- to protect the current account of the BOP
- to protect strategic industries