Economics

Report

Assessment task 1

Report written by: Zou Hong

Date: Dec 2008 SCN Number: 075393547

1. Introduction

The international trade has expanded substantially and there is no limitation to transport goods and services to all over the world. The increasingly international trades accelerate the Integration process of the World economy. This report will focus on some essential characteristics of the global economic environment. Some explanations of economic concept will be showed. And also added with develop research and analysis.

2. Three gains from trading international

The benefits from international trade are obviously. For individuals trading internationally can afford all kinds of goods with a good quality and reasonable price, they also can take a comparison between each commodities. As a company, they are free to choose where to purchase the raw materials to minimize the cost and export to the potential market which is profitable. But the most significant gains must be that the international trade leading to optimizing the distribution of resources.

3. Free trade

Free trade is a system in which the trade of goods and services between or within countries flows unhindered by government-imposed restrictions. For example, the North American Free Trade Agreement (NAFTA) which is signed by the United States and Canada and Mexico in 1992 years, and entry into force and implementation at New Year's Day in 1994. The content includes: mutual tariff reduction; the abolition of import restrictions; adhere to the provisions of origin; Agreement on Government Procurement; encourage investment; each other to expand financial services; mutual development of free transportation, and so on.

4. Absolute and comparative advantage

Taking an example for the explanation of absolute and comparative advantage, the following table (production possibilities for wine and olive oil in France and Greece) will be helpful. Country France Greece Labour input(days) Output -wine 5 5 200 100 Output –olive oil 150 120 It can be seen that in France, 5days labour input can take 200 units output-wine or 150 units output-olive oil, the same labour force in Greece are only 100 units output-wine or 120 units output-olive oil. Both of the number of output in wine and olive oil, France has a higher rate. That means France has absolute advantage for both the production of wine and olive oil.

For France, the opportunity cost of 1 liter of wine is 0.75 liter of olive oil, and the opportunity cost of 1 liter of olive oil is about 1.33 liter of wine. The loss for the production of 1 liter wine is less than the olive oil one. It indicates that France has the comparative advantage in wine and should specialize in it. Using the consistent method can know that Greece have comparative advantage in olive oil.

5. Protectionism

The definition of protectionism is the use of tariff and nontariff restrictions on imports to protect domestic producers and the weakness economic field from foreign competition. For instance, in order to keep domestic car industry from competing with foreign car, Chinese government levy high tariff on the import car. Domestic enterprise can developed well without the negative impact from the competition with foreign companies. Accordingly, the other benefit from the protectionism can be the increased job opportunities for home market which are caused by the growth of domestic companies.

6. Barriers

The usual barriers to trade are tariffs. The import country’s government collects the taxes or customs duties on foreign goods to raise their price indirectly, aiming for make it less competitive in the market. There is also having many non-tariff barriers. Taking the product standard procedures for example, product standard procedures are set in an unrealistic high level which may be very difficult for importers to meet. To illustrate, On 18 July 2005, China's Ministry of Commerce issued to local commerce departments the Standard Procedures for the Application for and Issuance of Temporary Export Licenses for Textile Products (Provisional), detailing the procedures for applying for and issuing of export licenses and certificates of origin for textile exports bound for the EU, as well as temporary export licenses for Chinese textile products.

7. The role of WTO in the development of free trade

Today, the most significant role as the WTO played is taking multilateral talks. The Sixth WTO Ministerial Conference was held in Hong Kong, China, 13–18 December 2005. In general, ministerial conferences are the WTO’s highest decision-making body, meeting at least once every two years and providing political direction for the organization. Furthermore, WTO also contributes to settling disputes. In May 2003, the United States (US), Canada and Argentina initiated a WTO dispute settlement process against the European Union (EU), citing an alleged de facto moratorium on approvals of biotechnology products, as well as the existence of individual Member State (Austria, Luxembourg and Italy) marketing and import prohibitions on previously approved biotechnology products. According to these countries these prohibitions were not scientifically justified and thus contrary to WTO rules.

8. The initiative and role of EU

The initiative of EU is \"through the establishment of a border-free internal space, to strengthen the economic and social development and the establishment of the single currency in Economic and Monetary Union in the end, help the member countries to promote balanced economic and social development\of the Common Foreign and Security Policy, promoting the League of personality In the international arena.” EU achieves the free movement of goods, people, services and capital, and the reducing in trade barriers. They formed a single currency market which is good for the free trade and investments.

9. The composition of the balance of payments

10. The general trends in UK trade over the last 30 year

11. The influence of the balance of payments affected by exchange rates

According to this theory, the exchange rate of the currency of a country depends upon the demand for and supply of foreign exchange.

The demand for foreign exchange and supply of foreign exchange arises from the debit and credit items respectively in the balance of payments. The debit items in the balance of payments are import of goods and services and loans and investments made abroad.

The supply of foreign exchange arises from the credit side of the balance of payments. It is made up of the exports of goods and services and capital receipts. If the balance of payments of a country is unfavorable, the rate of foreign exchange declines.

12. Two advantages and two disadvantages of the single currency for the UK

The single currency brings both positive and negative effects for UK. Two advantages and two disadvantages are given as following:

The first advantage of the single currency must be the increased opportunities for trade and investment, as the single currency lower the risks of exchange between domestic and foreign currency, this would lead the increasing in international trade and investment in UK. The second advantage is that the single currency can contributes to the decreasing in costs. For example, transaction costs will be lower than before as the eliminating the need for the exchange process.

The first disadvantage of single currency my caused by the monetary autonomy, as the single currency are stable in the control of monetary policy, put single currency in to practice in UK, which would changed the flexible situation of UK in monetary policy. Another disadvantage of it would be the employment problem. No restriction of exchange, capital outflow will depress the Market activity, the losing investment and trade may result in higher unemployment.

13. The effects on individuals and business of the single currency

The single currency enhances the fluency degree of the market. It is evident that the single currency will affects both individuals and business more or less.

Talk about the effects on business, the increased competition is obvious. It is evident that single currency reduces the cost of exchange, so that the cost for exporting will be acceptable and the profit can be attractive. On the other hand, the Unified currency led to the unification of the market, Britain companies have the choice to expand their EU markets. The single currency brings both opportunities and challenges.

For individuals, they can consume cheap but with high quality goods in a convenient way. Because of the reduction of the exchange and the competitive market condition, store can supply the goods in a lower level price. One more thing for individuals is that the single currency leads to the ease of making price comparisons.

14. The characteristics of Less Developed Countries(LDCs)

Less Developed Countries or \"LDC\"s are those countries that are not as rich as the industrialized countries of Western Europe and North America.These are often countries which have a lot of natural resources but not the industry to use them so the resources are sold to the countries which can use them. Low living standards and large scale unemployment are the mainly characteristic of LDCs. As the war and

Subject to frequent droughts and floods last year, crop diseases and insect pests and animal diseases such as the impact of the north-eastern Karamoja region of Uganda as many as 700,000 people are facing a serious threat of famine.

15. Two current issues that face LDCs

16. Two impacts of multinationals on Newly Industrialized Countries and LDCs 17. Conclusion 18. Reference

http://simple.wikipedia.org/wiki/Less_Developed_Countries