TPJC_H1_ECONS_EQ3_ANS

H1 EQ3 Suggested Answers 3 (a) Explain how the economic problem of scarcity could be overcome with the rise of globalisation. [10] (b) Discuss the view that globalisation is always benef icial to a small and open economy. [15] Suggested answer for (a): Introduction: • Define globalisation Globalisation is defined as the increasing integra tion of economies around the world especially through various forms like: - Free flow of goods and services ( free trade ) - Free flow of capital and investment ( financial flows) emergence of world financial markets & rapid movement of financial capital & rise and ex pansion of multinational corporations (MNCs) internationally - Free flow of people ( labour migration ) - Free flow of ideas and knowledge ( technology ) Define economic problem of scarcity Unlimited wants and limited resources resulting in scarcity thus required to make choices between competing us es incur opportunity cost, which is the next best alternative forgone. Body/Essay Development: Free flow of goods and services With globalisation Free flow of goods and services hence this allow c onsumers to gain access to goods and services internationally and ev en those that are not available in these home country Resulting in an increases in quantity, quality and varieties Thus increases consumers’ utilities and reduces the economic probl em of scarcity, i.e. there are unlimited wants but limited resources to produce where the do mestic country might not have the resources to do so, such as lack of knowledge, skil ls and technology etc. Hence with the rise of globalisation, the country can now consume beyond the production possibility curve (PPC). Free flow of capital and investment Globalisation opens up the country and results in an increase in the level of competition In order to remain competitive in the international ma rket, country would need to specialise in the production of goods that it has comparative advanta ge in i.e. lowest opportunity cost Increasing both individual as well as world output allowing countries to consume beyond their PPC Thus, reduces the problem of scarcity. At the same time, specialisation allows the countr ies to be more productive and efficient Leading to better allocation of resources Increasing quality and quantity of resources Increases productive capacity PPC shifts to the right/LRAS shifts to the right Reducing the problem of scarcity. Free flow of people/Free flow of ideas and knowledge Globalisation increases cross-border transfer of r esources, in terms of labour, capital and technology & knowledge. Labour Increase quantity of labour in the countries, with highly skilled labour, it will also increase in quality of work force Enhance productivity. Influx of low skilled foreig n labour will also lead to an increase in quantity of FOPs Increasing productive capacity Shift PPC or

LRAS to the right He