CCBE. BBE Program W.U. Vienna 2023 WITH COMPLETE SOLUTION

CCBE. BBE Program W.U. Vienna 2023 WITH COMPLETE SOLUTION comparative advantage - All nations can gain from trade if each specializes in producing what they are relatively best at. Globalization - Integration of national economies into global economic system First Wave of Globalization - advances of transportation, communication, British hegemony that began in 19th century and ended by WWI second wave of globalization - 1930 until present. -Technological innovations accelerate -End of Cold War: virtually all countries embrace free market capitalism and trade Countries with higher rates of GDP growth tend to - have higher rates of growth in trade as a share of output Growth-enhancing factors: - competition, economies of scale, learning and innovation When a country opens up to trade... - it causes a shift in demand and supply of goods -> change in prices as local markets respond -> impact on households (everyone) • Trade hence affects everyone since markets are interlinked General equilibrium consumption effects - = changes in consumption caused by the fact that trade affects prices of non-traded goods relative to traded ones "general equilibrium income effects" - = changes in wages caused by the fact that trade impacts the demand for different types of workers Not everyone benefits from trade in the same way. - If we aggregate changes in welfare across households, the net effect is often positive - many are still worse off though (cheaper goods, an increased availability of products doesn't immediately offset reduction of wages or loss of jobs) Openness Index - adds imports and exports in goods and services and divides this sum by GDP. The larger the ratio, the more the country is exposed to international trade. Globalization 2nd Wave - aided by reduction in transaction costs - development of commercial civil aviation, improvement of productivity in merchant marines and democratization of the telephone Globalization 1st Wave - Characterized by inter-industry trade: countries exported goods that were different from what they imported • Three indicators measuring integration across different markets; - goods, labor and capital markets The scope for specialization increases if countries do this: - Exchange intermediate goods for related final goods If something is expressed in constant e.g. 2010 dollars. - That all values have been adjusted to correct for inflation Imports incorporated in exports of a country are a key indicator of this: - Economic integration - tells us about global value chains global value chain - Formed when the different stages of production are located across different countries. Companies attempt to optimise their operations by locating various stages of production across different locations. domestic value added - Equals the price of a final commodity minus the cost of the imported inputs going into the production of the commodity. opposite= foreign value added bilateral trade agreement - A deal involving two trading partners, usually countries. Preferential trade agreement - a type of economic integration that removes (or reduces) trade barriers for certain products to countries that are in the agreement Opportunity cost - the value of everything one needs to give up in order to produce that good including physical inputs and forgone opportunities comparative advantage - the ability to produce something at a lower opportunity cost than someone else absolute Vs comparative advantage - the pilot can fly, and bake better than the chef. this is an absolute advantage in both. but the pilot gives up flying to choose baking, which is a large opportunity cost. therefore the chef maintains comparative advantage in baking. absolute advantage - the ability to produce a good using fewer inputs than another producer Needs-based justice - protect people from impoverishment who are not able to contribute activities that are demanded. Performance-based justice - compensate individuals according to the service they provide. The claim for an unconditional basic income is an example for - needs-based justice. Justice of Markets - similar to performance-based, but value is left to be assessed by the free market itself. Can be dangerous, b/c market opinion can be manipulated unfairly, and not all contributions are currently recognized by the free market. ( care of children, or elderly at home) Justice of Opportunities - To offset inequalities. All people should get equal chances to start out. (free tutoring, positive discrimination) Participatory Justice - Expanded form of Justice of Opportunities, not just equal chance at start, but ongoing, equal access to all of society's infrastructure. Environmental Justice - Responsibility for those affected by increased consumption in richer countries. Generational Justice - Responsibility to those in future generations. Three things humans need to be content in society. - Competence, Autonomy, Social Relatedness Competence - The ability to shape the society/workplace/community that a person belongs to. (learning, understanding, applying knowledge) Autonomy - The ability to do what a person wants, make decisions that affect the goals that they have set. Social Relatedness - The need to belong and feel safe. People require other people to be social. Performance-based justice considers unequal pay to be fair because - people contribute differently and should, thus, be remunerated differently. _____ justice and _________-based justice almost always arrive at the same conclusions - Market/Performance Possible ways to reinforce Justice of Opportunities. - Quotas favouring employment of people with special needs, and positive discrimination. Justice of Opportunities is impaired by - structural inequalities in the educational system, which favour affluent students. Justice of Opportunities can be offset by - positive discrimination. Production Possibilities Frontier (PPF) - the idea of a trade-off in that once a society has reached the efficient points on the frontier, the only way of getting more of one good is to get less of the other. Opportunity cost of good y - Sacrifice of good x/ Gain of good y Shifts in the PPF can be caused by - technological advances leading to a changes in the productivity of factors of production. Comparative advantage describes - the opportunity cost of two producers; the producer who gives up less of other goods to produce a given good has the smaller opportunity cost of producing that good and is said to have a comparative advantage in producing it If each person specializes in producing the good for which he or she has a comparative advantage, - total production in the economy rises, and this increases the size of the economic cake. In importing countries, - domestic consumers of the traded good are better off, and domestic producers are worse off. In exporting countries, - domestic consumers of the traded good are worse off, and domestic producers are better off. The Prebisch-Singer hypothesis states that - as incomes rise, spending on manufactured goods rises, whilst spending on primary products fall, which implies that the price of primary products should have a negative trend as the world gets richer Technology adoption through trade has been shown to - decrease the need for physically demanding skills and improve the relative wage and employment of women. (J