Globalisation - reasons and absolute&comparative advantage - chapter 16

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  • Created by: sammilaw
  • Created on: 23-02-16 17:41
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  • Globalisation
    • Chapter 16
    • Reasons:
      • Improved transport links
      • Development in technology i.e. the internet
      • Breakdown of Communism
      • Growing free trade
      • Growth of multinational corporations (MNCs)
        • i.e. Glaxosmithkline - headquarters in UK,factories in Malysia
      • Trading blocs i.e. the EU
    • Comparative advantage:
      • When a country can produce a good with a lower input cost than other countries
        • Lower opportunity cost ratio
          • Specialisation
      • Has led to increases in international trade as more can be supplied
        • Also, increase in economic welfares internationally
      • Should increase productive and allocative efficiency
        • Competitiveness leads to dynamic efficiency
    • Absolute advantage:
      • When a country using a given input produces more than other countries with the same input
        • The country is more efficient than others
    • Criticism of comparative advantage:
      • May ignore costs such as pollution, transport costs etc.
      • Ignores the possibility of geographical or occupational immobility of factors
      • Does not take into account the law of diminishing returns
      • Inflation is not accounted for - i.e. no relative prices or exchange rates
      • Non-renewable resources may run out, increasing the costs of production - CA not a static concept
      • Food security - countries will still produce food even if it not their product
      • Countries typically produce a variety of products for the global market i.e. China
        • Due to cheap production and the demand for choice and variety


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