F585 The Global Economy. The Global Economy Macroeconomic Performance Trade and Integration...
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Transcript of F585 The Global Economy. The Global Economy Macroeconomic Performance Trade and Integration...
F585 The Global Economy
The Global Economy
• 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
• International trade has a key role. It enables specialisation and influences:– Output– Employment– Price level
FirmsPurchase from
overseas
Sell overseas
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
Advantages gained from international
trade
Enables country to specialise
More competition = lower prices / higher quality
Greater variety of products /
services = more choice
Wider range of sources for raw
materials = cheaper
AS International Trade - Recap
Problems arising from international
trade
AS International Trade - Recap
Problems arising from international
trade
Increased competition in domestic markets =
some industries contract
Contracting industries and need to shift
resources = Problem of occupational immobility
of labour
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
• 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