Theme Four Part One


Characteristics of globalisation

  1. Greater trade in goods and services both between nations and within regions.
  2. An increase in transfers of capital.
  3. The development of global brands that serve markets in higher and lower income countries.
  4. Spatial division of labour.
  5. High levels of labour migration within and between countries.
  6. New nations joining the world trading system.
  7. A fast changing shift in the balance of economic and financial power from developed to emerging economies and markets.
  8. Increasing spending on investment, innovation and infrastructure across large parts of the world.
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Factors contributing to globalisation in the last

  • Containerisation - Increases productive efficency of firms by bringing lower costs down.
  • Technological change - Rapid and sustained technological change has reduced the cost of transmitting and communicating information

  • Economies of scale - An increase in the minimum efficient scale associated with some industries.

  • Differences in tax systems - The desire of businesses to benefit from lower unit labour costs and other favourable production factors abroad has encouraged countries to adjust their tax systems to attract foreign direct investment.

  • Less protectionism - Old forms of non-tariff protection such as import licensing and foreign exchange controls have gradually been dismantled.

  • Growth Strategies of Transnational and Multinational Companies - In their pursuit of revenue and profit growth, increasingly global businesses and brands have invested significantly in expanding internationally.

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Impacts of globalisation.

  • Individual countries - They will benefit diffrent countries diffrently. It will help NIC's NEE's and HIC's diffrently. Developed nations will gain higher imports and developing countries will gain higher exports
  • Goverments -  It will affect goverments as they have to decision make in order to regulate imports and exports. It will also have to set regulations on immigration and prevent the imports of demerit goods or goods that will affect the competion of local firms.
  • Producers - they may benefit through either imports or exports. They will benefit from economies of scale and can become more productively effiecient. However, the only problem is that competition will increase both locally and globally.
  • Consumers - Consumers will benefit from allocative and productive efficiency. This is because they will be able to have an increase in choice and will also gain benefits from lower pirces
  • Environment - The environment will be harmed becuase globalisation will exploit natural resources and will produce a lot of CO2 emmisions.
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Absolute and relative poverty

The difference between absolute poverty and relative poverty is that the emission is difference. Absolute poverty means you have No money and you don’t have any skills to make money while relative poverty means you have a little skills to make money although now you have little money.

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Measures of absolute poverty and relative poverty

Relative Poverty - As is well known, per capita income is only an average income per person and therefore does not represent a true index of social welfare. Social welfare in a society also depends on how the national income is distributed among the population.

Absolute Poverty - In absolute sense a person is poor if his income falls below a certain minimum level which is required to satisfy minimum basic needs. Now the problem faced in measuring poverty is to specify the minimum basic needs or what is also called minimum living standard that should be defined as poverty line.

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Causes of changes in absolute poverty and relative

  • Lack of education - Without it there will be a lack of skills for the person to get employed
  • Lack of resources - Without resources the people will not be able to create things to survive with or to create things to survive with
  • Internation sanctions - this will make the country go into debt which will cause there to be a lack of goverment intervention to help the country
  • Invasions - This will cause a depleetion of resources and factors of production.
  • Personal reasons
  • Physical disability - Preent them from being skilled to become employed
  • No family support - Without family support people will be at a disadvantage from the beginning which will lead to other factors
  • ill health - Prevent them from working
  • Lack of planning - This will cause them to mae wrong decisions and will lead to poverty
  • Forign aid - Withougt it some countries can suffer badly
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Measurements of income inequality:

Lorenz Curve - The Lorenz curve is a way of showing the distribution of income (or wealth) within an economy. It was developed by Max O. Lorenz in 1905 for representing wealth distribution.

Lorenz Curve

Gini Coefficient - The Gini coefficient is a commonly-used measure of income inequality that condenses the entire income distribution for a country into a single number between 0 and 1: the higher the number, the greater the degree of income inequality.

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Distinction between wealth and income inequality

Wealth is your total purchasing power. Income is an inflow of new purchasing power. Income inequality means some people are earning more than other people. Wealth inequality means some people have more than other people.

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Causes of income and wealth inequality in countrie

  • Education - Without proper education, it would be harder to earn a better income. 
  • Skills and training - If an employee lacks skills, it would be hard for them to find jobs that pay well or to be productive and earn bonuses
  • Experience/age - if an employee lacks experience it will be unable to bargain a higher wage.
  • Unemployment - the unemployment rate shows how many people there are without incomes.
  • Type of job - if a lot of low skilled jobs are available and barely any high skilled, it would be hard to earn a wage
  • Ownership of financial assets - If a person owns a lot of financial assets the person's wealth is higher
  • Inheritance - If someone owns inheritance, they will receive wealth in the long run.
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Impact of economic change and development on inequ

  • High increases in pay of people in top-paying jobs
  • Increasing wealth including rising property prices
  • Growing gaps between urban and rural areas
  • High fertility in poorer households
  • Increasing pay of those with higher levels of schooling especially with the growth of jobs and pay in high-knowledge industries such as computer gaming, engineering systems, financial trading
  • Reductions in the percentage of people who are members of a trade union
  • Linked effects of inequality in health and education
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Significance of capitalism for inequality

Profit motive -  A basic principle of capitalism is that individuals are motivated by the profit incentive.

Work Incentive - Inequality is also important to motivate workers. If every worker received the same wage regardless of skill and effort, there would be no incentive to learn new skills and work hard at the job. 

Monopoly Power - Then it is in a position to charge consumers artificially high prices and deter entry. If firms have monopsony power, they can get away with paying a wage much lower than the productivity of the worker. 

Inheritance - Another aspect of capitalism is that private property can be passed on from one generation to another. 

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Calculation of terms of trade

Terms of trade represent the ratio between a country's export prices and its import prices. How many units of exports are required to purchase a single unit of imports? The ratio is calculated by dividing the price of the exports by the price of the imports and multiplying the result by 100.

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Factors influencing a country's terms of trade

  • Reciprocol demand - The demand and elasticity of one countries good and service for another countries good or service.
  • Changes in technology - how technology will affect the terms of trade
  • Changes in taste - how changes in conumer prefrences have affected the terms of trade
  • Economics growth - How a country whose economy is growing will affect terms of trade
  • Tarrif - The tax on imports and exports will affect the terms of trade
  • Devaluation - The decrease in the countries exchange rate will affect the terms of trade
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Impact of changes in a country's terms of trade

Improvements - If acountry's terms of trade improve, it means that for every unit of exports sold it can buy more units of imported goods. So potentially, a rise in the terms of trade creates a benefit in terms of how many goods need to be exported to buy a given amount of imports. It can also have a beneficial effect on domestic cost push inflation  as an improvement indicates falling import prices relative to export prices.

Worsening - The danger of an improving terms of trade is that it can worsen the balance of trade if UK and overseas consumers are elastic in their response to the relative export and import price changes.

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Absolute and comparative advantage

absolute advantage describes a scenario in which one entity can manufacture a product at a higher quality and a faster rate for a greater profit than another competing business or country can accomplish.

Comparative advantage differs in that it takes into consideration the opportunity costs involved when choosing to manufacture multiple types of goods with limited resources.

Image result for Absolute and comparative advantage

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Advantages and disadvantages of specialisation and

Countries will usually specialise in and export products, which use intensively the factors inputs, which they are most abundantly endowed.

In the richest advanced countries, the comparative advantage is mainly in specializing in producing and exporting high-value and high-technology goods and high-knowledge services.

Comparative advantage exists when a country has lower opportunity cost

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Factors influencing the pattern of trade between c

· Comparative advantage - A person has a comparative advantage at producing something if he can produce it at lower cost than anyone else.
· Impact of emerging economies - This is the impact bought on how emerging economies will affect the pattern of trade betwenn countries.
· Growth of trading blocs and bilateral trading agreements - if trading agreements are inplace with countries then they are more likely to trade.
· Changes in relative exchange rates - If exchange rates of that country falls, imports will rise and exports will fall. If the exchange rate of that country rises then imports will fall and exports will rise.

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