Economics- 4.1 revision

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What is globalisation?
The ever- increasing integration of the worlds local, regional and national economies into a single international market.
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What factors influence international competitiveness?
Relative unit labour costs/ Wages and non-wage costs relative to those of competitors/ Rate of inflation relative to competitors/ Regulation relative to that of competitors
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What factors have contributed to globalisation?
Improvements in transport infrastructure and operations/ Improvements in communications technology and IT/ trade liberalisation/ Increasing number of TNCS/ development of international financial markets.
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What impact has globalisation had on workers?
Employment and unemployment/ Migration- Has increased/ Wages/ Multinationals
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What impact has globalisation had on consumers?
Consumer choice- The availability of goods and services has increased/ Prices- A decrease in the price of some goods/services/ Incomes- Have increased round the world generally
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What is a multinational company?
A company with significant product operations in at least 2 countries.
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What is factor endowments?
The amount of land, labour, capital and entrepreneurship that a country posesses and can exploit for manufacturing.
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What is meant by absolute advantage?
It exists when a country is able to produce a good more cheaply in absolute terms than another country.
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What is meant by comparative advantage?
The ability to produce specific goods at a lower opportunity cost.
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What is the calcualtion for terms of trade?
Index of export prices/ index of import prices x 100
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What factors influence the terms of trade?
1. relative inflation rates 2. relative productivity rates 3. changes in exchange rates 4. changes in demand for exports/imports 5. changes in incomes
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What is a trading bloc?
A group of countries that have signed an agreement to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves.
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What are the main advantages for members of trading blocs?
Free trade within the bloc/ Market access and trade creation/ Economies of scale/ Jobs/ protection
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What are the main disadvantages of trading blocs?
Loss of benefits/ distortion of trade/ inefficiencys and trade diversion/ retaliation
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What factors influence exchange rates?
1. Inflation 2. interest rates 3. speculation 4. change in competitiveness 5. relative strength of other currencies 6. balance of payments
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What are the advantages of specialisation and trade?
Lower prices and more choice for consumers/ Larger markets and economies of scale for firms/ Higher economic growth and living standards.
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What are the disadvantages of specialisation and trade?
A deficit on the trade in goods and services balance/ danger of dumping by foreign firms/increased unemployment/ global monopolies as global TNCS become larger
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What are the costs of regional trade agreements?
Transition costs/ loss of independent monetary policy/ loss of exchange rate flexibility
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What are the benefits of regional trade agreements?
elimination of transaction costs/ price transparency/ reduction in exchange rate uncertainty/ increased attractiveness for FDI.
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Why may a country restrict trade?
Protect infant industries/ Protect employment/ Retain self-sufficiency/ Correct imbalances on the BOP/Retaliate against restrictions imposed by another country/ Prevent dumping/ Reduce competition from countries with cheap labour.
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What are import quotas?
A physical limit on the quantity of imports
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Give 4 examples of non-tariff barriers?
Product specifications/ Health and safety regulations/ Environmental regulations/ Labelling of products.
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Give 5 possible causes of current account deficits?
Relatively low productivity/ Relatively high value of the countries currency/ Relatively high rate of inflation/ Rapid economic growth resulting in increased imports/ Non price factors such as poor quality and design
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Give 5 possible causes of current account surpluses?
Relatively high productivity/ Relatively low value of the countries currency/ Relatively low rate of inflation/ Low economic growth resulting in reduced imports/ Non price factors such as good quality and design
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Give 3 measures which could be used to correct a deficit on the current account?
Expenditure reducing/ Expenditure switching/ Supply-side policies
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Explain expenditure-reducing policies and their impact?
They relate to measures designed to reduce AD, such as deflationary fiscal policy. As a result people spend less on imports. However, a side effect of this is that spending on domestic goods also decreases, causing unemployment + a fall in growth
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Explain expenditure-switching policies and their impact?
Involve the use of protectionist measures or a devaluation of the currency under a fixed exchange rate. Measures encourage people to buy domestic goods rather than imports. But, may lead to retaliation, causing exports to fall.
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Explain supply-side policies and their impact?
e.g. spending on on education and training in order to improve quality and therfore competitiveness of exports, aim to boost export demand. While they can incur an opportunity cost, they contribute positively to economic growth.
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What is an exchange rate?
The price of one currency in terms of another
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What impact has globalisation had on producers?
Specialisation and economic dependency/ Costs and markets/ Footloose capitalism/ Tax avoidance
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What are the costs of globalisation?
Environmental damage/ Local domestic business may not be able to compete- Local job losses, poverty increases/ MNCS may exploit local workers/ Profit may be repatriated/ May support corrupt government.
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What are the benefits of globalisation?
FDI provides:- jobs/income - Could improve standard of living - Could reduce poverty - skills/training/education - More competition may lead to efficiency gains -Government tax revenues
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What is a common market?
A group of countries between which there is free trade in products and factors of production, and which imposes a common external tariff on imported goods from outside the market
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What is trade creation?
The switch from purchasing products from a high cost producer to a lower-cost producer.
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What is trade diversion?
The switch from purchasing products from a low-cost producer to a higher cost producer.
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What is an embargo?
Complete restrictions on imports.
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What is dumping?
The sale of goods at less than cost price by foreign producers in the domestic market.
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What is expenditure reducing?
Government policies to reduce the level of aggregate demand in order to reduce imports and boost exports.
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What is expenditure switching?
Government policies such as devaluation or protectionism designed to switch production currently being sold domestically to exports.
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What factors influence exchange rates?
Inflation/ Interest rates/ Change in competition/ Relative strength of other countries/ Balance of payments
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What is a fixed exchange rate system?
A rate of exchange between at least 2 currencies, which is constant over a period of time.
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What is a floating exchange rate system?
Where the value of a currency is determined by free market forces and where the value of a currency changes from day to day.
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What is the J curve effect?
In the short term, a devaluation is likely to lead to a deteriation in the current account position before it starts to improve.
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What is the marshall lerner condition?
Devaluation will lead to an improvement in the current account so long as the combined price elasticities of exports and imports are greater than 1.
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Other cards in this set

Card 2

Front

What factors influence international competitiveness?

Back

Relative unit labour costs/ Wages and non-wage costs relative to those of competitors/ Rate of inflation relative to competitors/ Regulation relative to that of competitors

Card 3

Front

What factors have contributed to globalisation?

Back

Preview of the front of card 3

Card 4

Front

What impact has globalisation had on workers?

Back

Preview of the front of card 4

Card 5

Front

What impact has globalisation had on consumers?

Back

Preview of the front of card 5
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