F585 The Global Economy

1. F585 The Global Economy

2. 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

3. Trade and Integration • Global trade • Exchange rates • Economic integration

4. AS Economics International Trade - Recap Purchase from overseas Firms • International trade has a key role. It enables specialisation and influences: • Output • Employment • Price level Sell overseas

5. 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?

6. 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?

7. AS International Trade - Recap • What are the major export destinations and sources of imports for the UK?

8. AS International Trade - Recap Advantages gained from international trade

9. 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

10. AS International Trade - Recap Problems arising from international trade

11. 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”

12. AS Recap - Protectionism • The protection of domestic industries from foreign competition. Why? • Eight methods (or more…!) – how many can you remember?

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

14. A2 Trade and Integration

15. 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

16. 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

17. 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)

18. 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.

19. 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.

20. Comparative advantage on a PPC