International trade

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  • Created by: charlie
  • Created on: 07-05-16 12:34
Globalisation postives
growth / jobs / more competition=lower prices / technology / culture
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Globalisation negatives
working conditions / environment / inequality / disease
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2 Reasons why globalisation happened (post WW2)
1) tech advancement 2) liberalisation of trade
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Globalisation positives: case study
China - communist to ADS + FDI / polarised / Guangdong (3 zones)
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Globalisation negatives: case study
Bhutan - traditional isolationists / opened to tourism / migration villages
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International trade: gains
selling G+S always beneficial / comparative adv as countries differ / economies of scale created
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International trade: negatives
create large disparities through wages / LEDC worry about competition / MEDC worry about living standard
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2 ways trade occurs
Resources (capital/ land/ labour) Productivity (how much 1 unit of labour can produce)
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Absolute advantage: Adam Smith
wealth through productivity / competition (specialise and exchange) / export goods with ABSOLUTE advantage / mutually beneficial
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Absolute advantage: definition
country has good with lower unit labour requirement and higher labour productivity than another country
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Comparative advantage: David Ricardo
wealth through productivity / competition / countries trade through COMPARATIVE advantage
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Comparative advantage: definition
country can produce a good at a lower opportunity cost than another country
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Comparative advantage: opportunity cost definition + equation
cost of the taking the next best alternative / lower the opportunity cost of producing that good the better /
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Comparative advantage: Autarky
Country is closed to trade / consumption=production/ goods exported from cheap autarky to expensive autarky
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Nominal price
price of good measured in units of currency
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Relative price
price of good measured in units of another good
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Ricardian model: assumptions
2 countries/ 2 goods/ 1 factor/ fixed resource endowment/ immobile production across countries/ mobile across industries/ tech level fixed but can be different/ constant MC/ full employment/ perfect comp/ no gov. obstacles
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Ricardian model: table
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Ricardian model: Production possibility frontier (PPF)
max amount of goods can be produced/ more of one=less of other/
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Ricardian model: PPF equations
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Ricardian model: absolute advantage equation
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Ricardian model: comparative advantage equation
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Ricardian model: common price (P*)
when open to trade/ supply to country their price will dec as supply inc /
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Autarky to Gains from trade: Japan 1858 to 1870
competitive markets/ product homogeneity/ price-taking behaviour/ opened up to manufacturing as lower foreign costs/ real national income inc 65%
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Heckscher-Ohlin theory
trade occurs due to differences in resources/ countries have different relative abundance of factors/ production use factors of production with diff. relative intensity (lab/machine)/ diff. capital-lab ratios
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Heckscher-Ohlin theory explains why...
countries with similar tech still trade/ countries indirectly trade factors contained in production
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Leontief paradox: US capital abundant + lab deficient
US capital-lab imports > capital-labour exports / but US worlds highest capital per worker
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Leontief paradox: US explanation
US labour can't be compared with other countries as US worker works 3x harder on avg
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Globalisation negatives


working conditions / environment / inequality / disease

Card 3


2 Reasons why globalisation happened (post WW2)


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Card 4


Globalisation positives: case study


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Globalisation negatives: case study


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