Economics Unit 3
- Created by: trinaevans76
- Created on: 03-06-15 12:08
Globalisation
Globalisation
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
MNCs
MNC- a company that has operations all over the world
Advantages
Disadvantages
Lower labour costs
Loss of jobs
Taking advantages of each country
Technology lost when relocated
Lower transportation costs
Loss of tax revenues
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
Advantages
Disadvantages
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
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
Protectionism
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
Regulations
Why?
· Stop negative externalities- alcohol
· Stop dumping
· Helps infant industries to develop
BRICs and the EU
Advantages
Disadvantages
Larger market to export to
Loss of jobs
Cheaper imports
More global warming
EU
Single market - no protectionism between members
- No border control
- Free movement of people
- Competition
Advantages
Disadvantages
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
EU
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
Advantages
Disadvantages
Price transparency
Monetary policy doesn’t suit everyone
Employment
Responding to recession takes time
Transaction costs
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
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
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
Competitiveness
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)
Globalisation 2
Advantages
Disadvantages
More FDI
Loss of jobs
More choice
Pollution
Sustained economic growth
Small businesses cannot gain
Poverty
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
LDCs
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
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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