Economics Unit 3




Globalisation – expansion of world trade in goods/services leading to greater interdepence.

Causes :

-          Improved transport

-          Less protectionism

-          Better living standards

-          Better IT

-          Economies of scale

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MNC- a company that has operations all over the world



Lower labour costs

Loss of jobs

Taking advantages of each country

Technology lost when relocated

Lower transportation costs

Loss of tax revenues

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International Specialisation + Trade

Absolute advantage – when a country is able to provide a good/service using fewer resources + at a lower cost than another country

International Trade – exchange of goods/services across international boundaries



More consumer choice

Pollution – factories

Lower price

Transportation costs

More competition so less monopolies

Air miles

Specialisation – being better than another country at providing a good/service in terms of quantity of output + lower cost

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WTO & Patterns of Trade

Cuts tariffs

Free trade – an absence of tariffs, quotas + regulations designed to reduce/prevent trade among nations

Advantages :

-          More choice

-          More competition + innovation

-          More world output

Patterns of trade

UK :       more services than goods

                more imports than exports

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Protectionism- an act to reduce international trade

Tariff- a tax placed on a foreign good to increase price and decrease demand

Quota- physical limit

Embargo- ban



·         Stop negative externalities- alcohol

·         Stop dumping

·         Helps infant industries to develop

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BRICs and the EU



Larger market to export to

Loss of jobs

Cheaper imports

More global warming


Single market  - no protectionism between members

-          No border control

-          Free movement of people

-          Competition



Free movement of capital

Job losses

Free movement of capital

Attracts jobs/capital away from the rest of the world

More competition

MNCs drive out local firms

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Customs Union- group of countries (e.g. EU) have free trade between members with a common external barrier

Single currency- group of countries agree to adopt the same currency + to have the same monetary policy



Price transparency

Monetary policy doesn’t suit everyone


Responding to recession takes time

Transaction costs

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Balance of payments

Current account – the balance of trade in goods/services + net investment incomes from overseas assets

Balance of trade in goods – the export of goods from the primary/secondary sectors minus the import of goods

Balance of trade in services - the export of services from the tertiary sector minus the import of services

Current account deficit(outflow) – the value of imports exceeds the value of exports

Current account surplus(inflow) – the value of exports exceeds the value of imports

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Current Account Deficit

Reasons for Current Account Deficit :

-          Globalisation – made in different countries

-          Exchange rate – too expensive

-          Low productivity/investment – can’t compete

Solutions :

-          Control inflation

-          R&D

- Improving productivity

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Exchange rates

Exchange rate – how much one currency is needed to be given up to buy one unit of another currency

Floating exchange rates – where the price of 2 currencies are decided by marker forces

Fixed exchange rates – where the central bank of a country tries to decide on the price of a currency

Strong £ = cheaper import + expensive exports

1.        Raise interest rates

2.       More pounds bought

3.       More demand for the pound

4.      Price is bid up

International competitiveness – ability of companies to compete with other companies from abroad

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Competitiveness – the ability of a country to compete successfully internationally + maintain improvements in real output and wealth

Factors influencing it :

-          Wages – cost more

-          Productivity – more output

-          Exchange rate

-          Raw materials – lower cost

Government policy + international competitiveness

-          Low inflation

-          FDI - Creates jobs + Innovation +  Output (more)

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Globalisation 2



More FDI

Loss of jobs

More choice


Sustained economic growth

Small businesses cannot gain


Absolute poverty- less than $1.25 a day

Relative poverty- less than 60% of the country’s median income

To reduce it :

-          National Minimum Wage

-          Child benefits

-          State pension

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Supporting LDCs

·         Aid                              -Money/goods. Money can be given in a grant or a loan with interest

·         Trade                         - Free trade

·         Investment             - Human capital- schools, training, skilled workforce attracts FDI

·         FDI                              - MNC set up in country- could lead to overdependence

·         Debt relief

·         NGOs                         -Non-government organisations- Oxfam, Save the Children- focus on specific issues

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LDCs 2

Limits to the benefits of globalisation

-          Low education + training – can’t use technology

-          Poor healthcare

-          Lack of investment – large foreign debts

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