year 13 stuff

Question 1

what is absolute advantage

Answer 1

when a country can produce a product using fewer factors of production than another country

Question 2

what is comparative advantage

Answer 2

when a country specialises in a good for which it has the lowest opportunity cost and then it trades with another country

Question 3

what are the assumptions of comparative advantage

Answer 3

perfect factor mobility(workers can move from one job to another)
always demand for the goods
trading conditions(exchange rate fluctuations)

Question 4

what are the beneifts of fre trade

Answer 4

allocative efficience- firms become more efficient therofer prices decrease
greater consumer choice - lower prices
improvements in skillset/technology

Question 5

what is protectionism

Answer 5

government actions and policies that restrict or restrain international trade

Question 6

what is the purpose of protectionism

Answer 6

to protect local businesses and jobs from foreign competition

Question 7

what industries are protected by protectionism

Answer 7

infant and sunset industries

Question 8

what is a tariff

Answer 8

a tax which is imposed onimported goods

Question 9

what is the purpose of a tariff

Answer 9

increases the price of imported goods for domestic customers

Question 10

what are the problems with tariffs

Answer 10

retaliation
inequality (regressive efgect)
higher consumer prices can lead to inflation

Question 11

what does the term hot money mean

Answer 11

money moves in and out of the country which has the highest interest rates

Question 12

what are the conditions/ theories that have to be met in order for devaluation to be successful

Answer 12

marshall lerner condition
J curve effect

Question 13

what does the marshall lerner condition state

Answer 13

depreciation of the exchange rate will eventually lead to a net improvement in trade balance as long as the SUM OF PED FOR X AND M >1

Question 14

what does the j curve show

Answer 14

in the SR it is likely that demand for exports and imports is likely to be inelastic
in the LR consumers will switch to the exported goods(prices are lower)

Question 15

what is the difference between FDI and portfolio investment

Answer 15

FDI is about acquiring tangible assets
portfolio is about speculative investments

Question 16

what are ways to reduce the deficit in the current account

Answer 16

deflationary policy
direct controls
devaluation

Question 17

how does the deflationary policy work

Answer 17

BOE increases interest rates, this reduces the domestic consumption

Question 18

how do direct controls work

Answer 18

this is a type of expenditure switching by making imports more expensive(tariffs or quotas)

Question 19

what is the difference between demand side and supply side to reduce the deficit in the balance of payments

Answer 19

supply side policies are more sustainable in the LR
demand side policies are more effective in the SR

Question 20

what are the effects of a weak pound on X AND M(on another country)

Answer 20

imports cheaper
exports expensive

Question 21

what are exchange rates

Answer 21

the value of currency in terms on another

Question 22

what are the factors that determine a currency’s value

Answer 22

high FDI = appreciation = more demad for £
portfolio investment = appreciation
High interest rates = appreciation

Question 23

what are the 2 types of currency systems

Answer 23

free floating
fixed exchange

Question 24

how does the free floating work

Answer 24

where the value of the currency depends wholly on market forces of supply and demand

Question 25

how does the fixed exchange system work

Answer 25

the central bank holds large amounts of currency reserves sell the domestic currency - increased supply buy foreign currency

Question 26

what is a trading bloc

Answer 26

a group of countries that agree to trade with eachother by reducinf barriers and tariffs

Question 27

what are the advantages of trading blocks

Answer 27

- economies of sale - production costs decrease - reduced tariffs

Question 28

what are the disadvantages of trading blocks

Answer 28

inequality - less developed countries benefit less potential conflicts dependency(comparative advantage results in dependencies)

Question 29

what is a customs union

Answer 29

group of countries that agree to remove trade barriers and tariffs between them, whilst adopting a trade policy towards non-member countries

Question 30

what are the advantages of customs union

Answer 30

Trade Creation consumers gain - cheaper EU price

Question 31

what factors determine the level of inequality

Answer 31

education and skills taxation inheritance limited access to affordable housing and healthcare

Question 32

Uk context with respect to inequality

Answer 32

- large gap between top and average income earners - regional disparities = more opportunities in the south - housing affordability

Question 33

what are the reasons to why poorer countries with huge potential for growth struggle to compete internationally

Answer 33

poor infrastructure poor quality of human capital (lack of skills) largescale corruption

Question 34

what is the importance of the financial sector

Answer 34

facilitating savings loan structure for small and medium sized businesses facilitating international transfers of money

Question 35

how can monetary policy be used to tackle inequality

Answer 35

expansionary policy: - lowering interest rates which encourages borrowing for investment/expansion and housing

Question 36

what are the limitations of using expansionary monetary to tackle inequality

Answer 36

may lead to inflation as a result of excess demand

Question 37

how can fiscal policy be used to tackle inequality

Answer 37

- increased government spending on education and healthcare - progressive taxation to redistribute wealth

Question 38

what are the limitations of using fiscal policy to tackle inequality

Answer 38

my lead to a budget deficit and increased borrowing

Question 39

how can supply side policy be used to tackle inequality

Answer 39

- increased productivity and job creation - improves wages and opportunities for lower income groups

Question 40

what are the limitations of using supply side to tackle inequality

Answer 40

the benefits may not immediately reach lower income groups

Question 41

what are the disadvantages of a customs union (for UK aswell)

Answer 41

- government will lose potntial revenue from tariffs - trade diversion (loss of welfare),group of countries only buy from one another - customers lose in UK because EU producers implement tariffs

Question 42

what are quotas

Answer 42

type of policy that sets a limit of a good that can be imported into the country

Question 43

what are the 2 limitations of the HDI model

Answer 43

ignores qualitative factors such as quality of education ignores income distribution

Question 44

what is managed exchange rate

Answer 44

when the government will start to control the exchange rate once it goes above/ below the limit

Question 45

what is the UK context in terms of trade deficit / surplus

Answer 45

£28.5 bn (overall deficit) £38.2 bn (surplus in services)

Question 46

what domestic policies could be used to improve the balance of payments

Answer 46

improvements in infrastructure deregulation privatisation

Question 47

what government policies could be used to improve the balance of payments

Answer 47

tariffs subsidies

Question 48

what could be done to the exchange rate in order to improve the balance of payments

Answer 48

devaluation

Question 49

what is the name of the term when firm join a trading blovk or a customs union

Answer 49

Economic integration

Question 50

what could be done in order to improve non-price competition and encourage market stability

Answer 50

introducing supply side policies like : - subsidies - lowering corporation tax IN ORDER TO imprve R and D