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econ theme 4 - Coggle Diagram
econ theme 4
international economics
globalisation
refers to the increased integration between countries economically, socially and culturally
key characteristics:
- increased trade as a proportion of gdp
- increased foreign direct investment
- increased capital flows between countries
- increased movement of people between countries
foreign direct investment (FDI) occurs when a company in one country establishes operations in another
capital flows refer to all the money moving between countries as a consequence of investment flows into and out of countries around the world
causes:
- decrease in transport costs
- decrease in costs of communications
- reduction in world trade barriers
- growth of trading blocs
impacts:
- comparative advantage leads to increase in living standards
- deterioration in trade balance if no competitive advantage and rely on imports
- increased inequality
- tax revenue increase
- firms benefit from EOS
- consumers get lower prices
- increased employment opportunities
- increased external costs on environment
- supply chains lengthier and more complex
specialisation and trade
absolute advantage implies that a country can produce more of one product then another country can with the same amount of resources
comparative advantage is where a country can produce a good with lower opportunity cost than another country
assumptions:
- constant returns to scale (ppf drawn as straight line)
- no transport costs
- no trade barriers
- perfect mobility of fops
- externalities ignored
limitations:
- free trade is not fair trade
- assumptions are unrealistic
- if opportunity costs are the same
advantages of specialisation and trade:
- higher living standards
- lower prices
- transfer of management expertise and tech
- EOS
disadvantages of specialisation and trade:
- deficit on trade in g + s balance
- danger of dumping
- increase unemployment
- TNCs may become global monopolies and exploit consumers
- unbalanced development
patterns of trade (key factors influencing this between countries):
- changes in comparative advantage
- growth in exports
- growth of supply chains
- increased importance of emerging economies
- growth of trading blocs
- changes in relative exchange rates
terms of trade
factors influencing a countries terms of trade:
- inflation
- productivity
- exchange rate
effect of increase:
- higher living standards
- deterioration in current account of balance of payments
-
reasons for restrictions on free trade:
- prevent dumping
- correct deficit in trade in goods and services balance
- reduce unemployment
- reduce risk of disruption resulting from problems in global economy
- limit monopoly power
- protect infant industries
types of restrictions
-
-
subsidies to domestic producers are government grants to a firm which reduces costs of production, causing supply curve of domestic producers to shift right
non tariff barriers include:
- health and safety regulations
- environment regulations
- labelling of products
impact of protectionist policies:
- higher prices so reduction in consumer surplus and choice
- less competition and less incentive to produce at lowest AC
- increased tax revenue
- distortion of comparative advantage so specialisation is reduced
- increase in income inequality