Flashcards · J205 · Topic 4

International trade and the global economy flashcards

23 cards on Topic 4, subtopics 4.1 to 4.4. Pick a subtopic or study them all.

Study mode needs JavaScript. Every card is listed below, so you can still cover the answers and test yourself.

All 23 cards

For a quick read-through or printing. Cover the right-hand side to test yourself.

4.1 Importance of international trade

Why do countries import and export?: Import: resources lacking at home, lower prices, variety and inputs for firms. Export: a larger market, specialisation, and foreign currency to pay for imports.
Tariff and quota: Tariff: a tax on imports. Quota: a limit on the quantity of an import.
Free trade agreement, customs union and single market: Free trade agreement: a deal to remove or cut barriers between members. Customs union: members share a common tariff on imports from outside. Single market: goods, services, capital and people move freely between members.
A 25% tariff is charged on an import with a pre-tax price of 48. By what percentage does the price fall if the tariff is removed?: Shelf price with tariff: 48 × 1.25 = 60. Removing it cuts the price by 12 ÷ 60 × 100 = 20% (divide by the old price).
Benefits of trade for consumers and producers, and one cost: Consumers: lower prices, more choice, better quality through competition. Producers: a bigger market, economies of scale, cheaper inputs. Cost: job losses in industries facing imports and dependence on other countries.
How is the European Union more than a free trade agreement?: It is a single market plus a customs union with a common external tariff. The UK has left the EU; its trade with the EU now runs under a trade agreement, and the EU remains a very important market.

4.2 Balance of payments

The four parts of the current account, with an example credit for each: Goods: selling machinery abroad. Services: a foreign tourist spending in the country. Primary income: profits sent home by an overseas branch. Secondary income: money sent home by workers abroad. Balance = total credits − total debits.
Credits: goods 150, services 60, primary 18, secondary 5. Debits: 175, 40, 10, 16. Find the current account balance.: Credits 233, debits 241, so the balance is −8: a current account deficit of 8 billion.
Current account deficit, surplus and balance: Deficit: debits exceed credits (balance below zero). Surplus: credits exceed debits (above zero). Balanced: credits equal debits.
What makes a current account deficit more likely?: A strong exchange rate, fast growth in household spending, low productivity or high inflation, weak growth in trading partners, and few natural resources to export.
Why does the current account matter to the UK economy?: The UK is open to trade, a persistent deficit has to be financed by borrowing or selling assets, the currency may come under pressure, and exports support jobs. The cause matters as much as the size.
Exports rise from 80 to 90 billion over two years. Find the percentage change.: (90 − 80) ÷ 80 × 100 = 12.5%. Always divide by the old value.

4.3 Exchange rates

Appreciation and depreciation: Appreciation: the currency buys more foreign currency. Depreciation: the currency buys less foreign currency.
At £1 = €1.30, what does a €300 bill cost in pounds? What if the pound falls to €1.20?: Divide by the rate: 300 ÷ 1.30 = £230.77; at 1.20 it is 300 ÷ 1.20 = £250.00. Pounds to euros: multiply. A weaker pound makes foreign goods and holidays dearer.
Exchange rate diagram: what happens when interest rates rise relative to other countries?: Vertical axis: exchange rate (e.g. euros per pound); horizontal: quantity of pounds. Foreign savers want more pounds, so demand for pounds shifts right and the pound appreciates. More imports would shift supply right, causing depreciation.
Effects of a depreciation on exports, imports and firms: Exports become cheaper abroad, so more are sold (more if demand is elastic). Imports and holidays abroad become dearer. Firms using imported inputs face higher costs, which reduces the gain.
Who demands and who supplies a currency on the foreign exchange market?: Demand comes from overseas buyers of exports, tourists visiting and foreign investors. Supply comes from residents buying imports, travelling abroad and investing abroad.

4.4 Globalisation

Globalisation and its driving factors: The growing integration of economies through trade, capital, people, information and ideas. Drivers: falling transport costs, communications technology, trade agreements, multinational companies, rising incomes and freer movement of capital.
Measures of development, and why GDP per capita alone is limited: GDP per capita, life expectancy, access to health care, technology (internet users) and education (schooling, literacy). GDP per capita hides inequality and non-market activity; composite measures such as the Human Development Index combine income, health and education.
Costs and benefits of globalisation in developed countries: Producers: bigger markets and cheaper inputs, but more competition. Workers: export jobs, but job losses and wage pressure in some industries. Consumers: lower prices and more choice, but fewer local firms.
Costs and benefits of globalisation in less developed countries: Producers gain market access, investment and technology but face multinational competition and reliance on a few exports. Workers gain new jobs but may face low pay, long hours and weak protection. Consumers get cheaper goods.
GDP grows 3% and population 1.2%. By about how much does GDP per capita grow?: 1.03 ÷ 1.012 − 1 ≈ 0.018, so about 1.8%.
The three sustainability tests for globalisation: Economic: lasting income and skills, or dependence on one product? Social: less poverty, or wider inequality? Environmental: transport emissions, pollution and resource use, set against cleaner technology.