2.4 Life in a global economy

• globalisation

  integration of the worlds economies in single market, whereby tariffs and quotas are eliminated
• how has transport contributed to an increase in globalisation

  now easier and more efficient to transport goods to and from different countries, thereby encouraging more trade
• international institution that regulates global trade

  the WTO
• what are MNC's

  corporations that manage the production of goods/services in multiple countries
• containerisation


  the distribution of goods in standard sized containers
• 2 countries that have arguably grown the most due to globalisation

  India and China
• GDP per capita

  GDP of an economy divided by its population
• 2 limitations of using GDP to measure the health of an economy

  • does not give any indication to the distribution of income and wealth
  • cannot track the performance of the hidden markets
• 3 components of the HDI index

  • education
  • life expectancy
  • standard of living
• how does population growth in developed countries compare to developing countries

  much slower population growth in developed economies
• which type of economy usually has a stronger agricultural sector

  developing economies
• specialisation

  occurs when each worker completes a specific task in the production process, which can increase productivity and therefore reduce average costs of production
• disadvantages of specialisation

  • employee motivation is compromised as a result
  • structural unemployment, due to a mismatch between skills required and provided
• comparative advantage

  occurs when one country can produce a good/service at a lower opportunity cost than a different country
• absolute advantage

  when one country can produce more units of a good/service than a different country with the same factor inputs
• what are free trade areas

  comprise of different countries that agree to trade with each other with no protectionist barriers
• how do custom unions differ from free trade areas

  comprises of a free trade area and a common external tariff, meaning it has a common trade policy with countries outside the customs union
• What 2 features are added to a customs union to make it a common market

  the free movement of labour and capital
• example of a monetary union

  the eurozone
• how can firms benefit from economies of scale when in a trade bloc

  by entering a trade bloc, firms now have access to a broader market, which increases their output which they can benefit from lower average costs
• how would costs between borders be reduced by entering a trade bloc

  by eliminating protectionist measures such as tariffs, there is no need for firms to pay high taxes, which could result in lower prices
• what is an outflow of money :imports or exports

  imports
• what are exports

  goods/services that are sold to foreign countries and are positive on the balance of payments scale
• do the UK specialise in goods (visible) or services (invisibles)

  services (invisibles)
• how do cheap imports affect unemployment in the domestic economy

  cheap imports harm domestic firms as they lose their competitive advantage, therefore they produce less units of output, meaning they require less workers, hence unemployment rate increases
• how do cheap imports affect the domestic inflation rate

  cheap imports promote competition, so firms find ways to reduce costs and lower prices, which lowers the overall rate of inflation
• how is the exchange rate determined in a floating system

  determined by the forces of supply and demand
• how is the exchange rate determined in a fixed system

  determined by what the government wants to value the currency at
• graph showing what happens to the exchange rate when demand for one currency increases


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• how would a depreciation of the pound (£) help domestic firms

  it makes exports cheaper, which boosts demand for them and therefore helps UK firms grow
• how would a depreciation of the pound (£) damage domestic firms

  if UK firms import raw materials from other countries, a depreciation increases the cost of these materials, which would be passed onto consumers through higher prices
• what is the effective exchange rate

  shows the strength of one currency compared to a basket of others, whereby the weight of different currencies is determined by how much trade occurs between the two countries