Globalisation - reasons and absolute&comparative advantage - chapter 16
- 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
- Lower opportunity cost ratio
- 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
- When a country can produce a good with a lower input cost than other countries
- 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
- When a country using a given input produces more than other countries with the same input
- 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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