F585 The Global Economy

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F585 The Global Economy
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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

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Trade and Integration

• Global trade
• Exchange rates
• Economic integration

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AS Economics International Trade - Recap
Firms
Purchase from overseas

• International trade has a key role. It enables
  specialisation and influences
• Output
• Employment
• Price level

Sell overseas
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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?

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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?

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AS International Trade - Recap

• What are the major export destinations and
  sources of imports for the UK?

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AS International Trade - Recap
Advantages gained from international trade
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AS International Trade - Recap
More competition lower prices / higher quality
Enables country to specialise
Advantages gained from international trade
Greater variety of products / services more
choice
Wider range of sources for raw materials cheaper
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AS International Trade - Recap
Problems arising from international trade
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AS International Trade - Recap
Contracting industries and need to shift
resources Problem of occupational immobility of
labour
Increased competition in domestic markets some
industries contract
Problems arising from international trade
Restrictions on imports
Red tape
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AS Recap - Protectionism

• The protection of domestic industries from
  foreign competition. Why?
• Eight methods (or more!) how many can you
  remember?

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Protectionism

• Tariffs
• Quotas
• Voluntary Export Restraint (VER)
• Foreign Exchange restrictions
• Embargoes
• Red Tape
• Quality standards
• Government Purchasing policies

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A2 Trade and Integration
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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

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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 cant produce
  as efficiently
• The goods / services they should specialise in
  are determined by their absolute and comparative
  advantages

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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)

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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.

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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.

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Comparative advantage on a PPC