trial 4

Question 1

Advantages & Disadvantages of the Single European Market

Answer 1

Advantages
Increased trade
EU countries are on average 12% richer a decade after they join than they would otherwise be

Economies of scale – UK firms have access to over 500m people across Europe
Increased competition may lead to improved choice & quality with lower prices

Increased number of alliances and joint projects

Lower costs of production with zero tariffs/quotas

Increase mobility of labour & capital could lead to lower business costs and lower unemployment

Disadvantages
We have become dependent on trade and capital

integration with the EU and are now vulnerable to their economic downturns/banking crises/debt crises

Firms have moved to central and eastern Europe to cut costs

Bureaucracy – far more paperwork has to be completed to obey all EU rules & policies

Taxation rates not harmonised therefore different rates of excise duties, VAT & corporation tax still create a competitive advantage for some countries

Question 2

Describe the reasons why governments restrict trade

Answer 2

To protect an infant industry in a competitive market (1 mark). Restricting trade stops foreign competition and this allows the infant industry to find its feet and to grow. (1 development mark) This is because overseas competitors may have economies of scale as yet unavailable to the infant industry. (1 development mark)

To improve the Balance of Payments by reducing imports. (1 mark) This would reduce demand for imports and therefore help reduce a deficit.
(1 development mark)
(1 development mark)

A trading partner may be acting against human rights (1 mark). This is because restricting trade could put pressure on the trading partner to respect human rights. (1 development mark)

To protect key/strategic industries (1 mark) for example defence construction. (1 development mark)

To prevent ‘dumping’. (1 mark)

To protect employment. (1 mark)

To reduce the quantity of products which do not
meet H&S/Environmental standards.

Question 3

problems with a developing economy hosting a mnc

Answer 3

• Jobs may be lost in smaller firms if they close due to competition from multinationals. Many of the jobs offered by multinationals may be low-skilled jobs. In addition, multinationals often fill management jobs with personnel from the home country. Changing economic or political factors may cause a multinational company to decide to move one of its factories to another country, causing the loss of many jobs
• bop - A multinational may repatriate profits, adversely affecting the balance of payments of the host country as the profits are sent home. A multinational may purchase inputs from their subsidiaries in other countries or the home country, thus increasing visible imports.

Question 4

effects of exchange rate changes on indivuals firms and the economy. if the pound strengthens

Answer 4

Individuals

• Imports more competitive – eg cheaper for foreign holidays.
• Exporting firms may reduce output so may shed labour.

firms
Industries which import their raw materials, components, etc will experience a fall in costs.
- Exports become less competitive so those trading internationally will suffer. Profits will fall.

Increased imports will weaken the balance of payments.
Reducing prices of imports will dampen inflation.

• Decreased exports will weaken the balance of payments.
  Output may fall.
  Unemployment may rise.

Question 5

effects of exchange rate changes on indivuals firms and the economy. if the pound weakens

Answer 5

indivduals

Imports less competitive – eg foreign holidays become more expensive.

Exporting firms may increase output so may employ more labour.

firms

Industries which import their raw materials, components, etc will experience rising costs.

Exports become more competitive so those trading internationally will benefit from increased revenue and profits.

the economy
Decreased imports will strengthen the balance of payments.
Increased prices of imports may cause inflation.

Increased exports will strengthen the balance of payments.
Output may rise.
Unemployment may fall.