Transcript F585 The Global Economy

F585 The Global Economy
The Global Economy
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Macroeconomic Performance
Trade and Integration
Development and Sustainability
The Economics of globalisation
Questions are mainly “essay” type (shorter
and longer) and involve some data analysis
• Questions link to pre-release stimulus material
• 2 hours 60 marks
Trade and Integration
• Global trade
• Exchange rates
• Economic integration
AS Economics International Trade Recap
Purchase
Firms
Sell
from
overseas
overseas
• International trade has a key role. It enables
specialisation and influences:
– Output
– Employment
– Price level
AS International Trade - Recap
• The UK is internationally competitive in which
industries?
• Telecommunications
• Aerospace engines
• Computer Software
• Financial services
• What competitive advantage does the City of
London have as a financial centre?
AS International Trade - Recap
• AD = C + I + G + (X-M)
• What is it called if X is larger than M?
• Trade Surplus: the value of exports exceeding the
value of imports
• What is it called if M is larger than X?
• Trade Deficit: the value of imports exceeding the
value of exports
• What sort of categories of trade might the UK
have a Trade Surplus in?
AS International Trade - Recap
• What are the major export destinations and
sources of imports for the UK?
AS International Trade - Recap
Advantages
gained from
international
trade
AS International Trade - Recap
More
competition =
lower prices /
higher quality
Enables
country to
specialise
Advantages
gained from
international
trade
Wider range of
sources for raw
materials =
cheaper
Greater variety
of products /
services = more
choice
AS International Trade - Recap
Problems
arising from
international
trade
AS International Trade - Recap
Increased competition in
domestic markets =
some industries contract
Contracting industries
and need to shift
resources = Problem of
occupational immobility
of labour
Problems
arising from
international
trade
Restrictions on
imports
“Red tape”
AS Recap - Protectionism
• The protection of domestic industries from
foreign competition. Why?
• Eight methods (or more…!) – how many can
you remember?
Protectionism
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Tariffs
Quotas
Voluntary Export Restraint (VER)
Foreign Exchange restrictions
Embargoes
Red Tape
Quality standards
Government Purchasing policies
A2 Trade and Integration
Learning Objectives
• Understand what is meant by, and distinguish
between, absolute and comparative advantage
in international trade
• Apply the concept of relative opportunity cost to
understand comparative advantage
• Interpret data to identify comparative advantage
• Understand the terms of trade and a trading
possibility curve
• Understand the sources of comparative
advantage
Absolute and comparative advantage
• What determines international trade?
• Countries specialise in the production of
certain goods / services which they can
produce efficiently. By exporting these they
earn revenue to import the goods / services
they can’t produce as efficiently
• The goods / services they should specialise in
are determined by their absolute and
comparative advantages
Absolute and comparative advantage
• Absolute and comparative advantage explained
(1)
• Absolute and comparative advantage explained
(2)
• Absolute advantage: the ability to produce one
good/service more efficiently (lower unit cost) –
so more of a good with same amount of
resources or same amount of a good with fewer
resources
• Comparative advantage: the ability to produce a
good/service at a lower relative opportunity cost
(a smaller sacrifice in the production of another
good/service)
Absolute advantage
• Zambia has an absolute advantage over many
countries in the production of copper. It has
reserves of copper ore or bauxite so can
specialise and produce efficiently. It therefore
exports copper.
Absolute advantage on a PPC
• Country A has an Absolute Advantage in the
production of both Maize and Wheat. Its PPC
lies to the right of Country B showing that due
to abundance of resources or efficient
techniques it can produce more wheat and
maize.
Comparative advantage on a PPC