Economics Unit 3

Common Customs Tariff (CCT):

- A tariff is a tax on imports. It makes imports less price competitive in the EU market. The Common Customs tariff (CCT) is often referred to as age common external tariff. It applies to the import of goods across the external border of the EU. The tariff rates do vary according to the kind of import. - The EU claims that the tariff ensures that EU domestic producers are able to compete fairly against imports from the non-EU countries. Others may regard it as a form of protectionism. It does have serious implications for the economies of developing countries by making it harder to sell in the affluent EU market.

The Uk imports more than it exports. Why does this happen? Is is important? There are several possible reasons for this deficit:

- As a fairly densely populated island we are a net importer of food. -Many of our natural resources (e.g. coal) have been exploited over the centuries to the extent that what is left is difficult and expensive to get at. Therefore we are a net importer of many commodities and raw materials. However, the windfall of North Sea oil does mean that trade in oil is closer to balance. - Comparative advantage in many manufacturing industries has moved abroad where the factor inputs (e.g. labour) are cheaper. For example wages are lower in the Far East. - Some calculations suggest that the UK economy has lower productivity (efficiency) than, for example, the USA or Germany. These international comparisons are fraught with calculation problems so this cannot be relied upon. - The value of the pound has at certain times been unhelpfully high. This makes import prices cheaper and our export prices dearer. In early 2008 the pound was high against the dollar making exporting to the USA difficult. In 2014, the pound had again risen, reflecting a recovery in the UK economy. In June 2016 it fell significantly after Brexit vote making imports more expensive but allowing exports to become more competitive on the world market. - There have been question marks in the past over the quality of management and the quality of design in this country, although improvement has occurred in both of these areas. - Investment in modern capital can be lower that in many other countries.

There are some terms related to aid that you should be familiar with:

- Bilateral aid given by one country to anchor country. - Multilateral aid given by an international agency such as the World Bank.

For the Uk the process of enlargement has several benefits:

- Consumers will have a greater choice of products, as new members begin to export to the UK. - It increases competition. Competition drives down prices, leads to innovative behaviour by firms, and can improve the quality of products. - It allow labour shortages to be met with foreign workers. This addition to supply in he labour market will help to keep down wage inflation. Good news for companies and a benefit for the overall economy. - It provides new markets (no trade barriers) for our exporters should gain more from economies of scale a they supply a free trade single market of over 500 million consumers. - It provides opportunities for UK based firms to improve profitability by moving to the lower wage economies of the new members.

The location factors for multinationals, outlined here, are not very different from the location factors for any firm:

- Costs of production. - Infrastructure. - Markets. - Risks.

Some of effects on the host country in which a multinational operates include:

- Creating employment, and this had a positive multiplier effect on the economy. - Training of workers. -Largely repatriating profits to the home nation, so profits are not always reinvested locally. This money leaves the host's circular flow as a leakage. - Improving standards by offering better working conditions than local firms. -Undercutting local firms' prices which may put them out of business. -Introducing modern technology and management methods. -Potentially causing pollution and long-term environmental damage. -Increasing exports, improving the balance of payments, and injecting money into the county's circular flow. - Delivering only low-skilled jobs, retaining top jobs in management and research at the home base. - Potentially may be footloose with a little loyalty, and move on in a few years to a cheaper location. - Exploiting workers by taking advantage of weak labour laws.

To clarify the position, only three will be used in this section, namely:

- Developing countries. - Emerging countries. - Developing countries.

Some examples of the types of aid that may be given by developed countries are:

- Emergency aid consisting of gifts of food and medicine. - Grants that, although free, may carry conditions. - Loans at commercial rates of interest. - 'Soft' loans at low rates of interest. - Writing off past debts. - Technical assistance - such as economists seconded to their governments. - Education - financing students to attend universities in developing countries.

Items in the balance of payments include:

- Exports and imports of goods. - Exports and imports of services. - Dividends and interests paid across national boundaries (income flows). - International investment flows in and out of the UK (financial flows). - Foreign aid and transfers to and from international organisations such as the European Union (transfers).

The following can address a current account deficit:

- Fiscal policies that act to slow the economy such as increasing taxation or cutting back on government spending act to improve the balance of payment for the same reason a recession did - less aggregate demand means less demand for imports. - Monetary policies that curtail demand such as higher interest rates work in a similar way. - Devaluation of the pound. If the exchange rate of the pound falls then UK exporters can cut prices in foreign currency and still receive the same return in pounds. Exports are encouraged and the converse effect reduces imports. - Increased productivity in UK firms enables our goods and services to compete better in market at home and abroad. - Supply-side measures can make our economy more flexible and adaptable may give us a competitive edge.

To summarise the effects o a falling exchange rate:

- Inflation will tend to rise because of the rising costs of imported goods and services, and the rising price of imported raw materials and components. If rising inflation encourages expectations of future inflation then trade unions will demand higher wage rises and inflation in the Uk economy could become built-in and difficult to reduce. - UK exporters will enjoy a price advantage in foreign markets. In the Holme market, it will be harder for imports to remain competitive. Both of these outcomes of a falling exchange rate will increase sales by Uk firms and hence Uk output. Faster economic growth will lead to higher employment.

The advantages of joining the euro for the UK are similar to the benefits of the single currency which are that:

- It reduces the risk for UK firms that adverse exchange rate fluctuations will affect profits. - It removes conversion costs for firms and tourists (no need to exchange currency and pay commission). - It is expected that a European Central Bank will be firm on inflation. - It will create price transparency so that consumers can easily compare prices across the EU. - It is more likely that the EU would continue to attract foreign investment because the uncertainty of fluctuating exchange rates when exporting to the EU is removed, the UK's flexible labour markets help it be successful within the Eurozone.

Some of the effect on the home country in which a multinational operates include:

- Jobs being lost overseas, with a negative multiplier effect. - Deindustrialisation, and loss of skills in the workforce. - Profits are often repatriated and contribute to investment in the home country. - Home-based firms continue to compete on world markets and survive (or even thrive). - Fewer exports and negative impact on balance of trade.

Other effects may include:

- Jobs will be lost, economic growth will slow down and there is a possibility of recession. The danger then is that recession drags down even efficient firms as a negative multiplier effect takes hold on the general economy. - On amore positive note, the slowdown may not go as far as recession and during the process UK productivity will rise under the competitive pressures and a leaner, more efficient UK economy will emerge. - When the least efficient go out of business, average productivity in the economy can be expected to. improve as only the most efficient survive.

The gains for producers are:

- Larger market - Opportunities for economies of scale increase with greater number go customers. - Number of customers. - Diversification - more than one market gives the benefits of diversification.

The disadvantages of floating exchange rates:

- Markets can over-soot. Market sentiment is not they lead same as speculation. Markets are made up of traders and there will always be a psychological component to their behaviour. The prevailing conventional wisdom may temporarily lead markets in appropriate direction. Belief in the benevolence of markets should be tempered. - The steady decline if a currency over time remains an option for a government that refuses to deal with supply-side productivity problems within its economy. Allowing your currency to sink slowly may be an option taken hard decisions that address fundamental economic problems with tough fiscal, monetary or supply-side policies. - Exchange rate policy such as having a higher exchange rate to reduce inflation is no longer an option. By allowing a free float, you exclude the possibility of using the exchange rate to control your economy. - Speculators will not go away. The currencies of small countries will be particularly open to bouts of speculation. The act of speculation. brings about the expected outcome. If a currency is heavily sold its price will fall. The speculators bring about the very outcome they were speculating on. In early 2008 there were rumours that the Icelandic currency was witnessing just a bout of market manipulation. - Stability of exchange rates assists international trade. The futures market allows firms to be certain as to the exchange rate they will receive even in a world of floating exchange rates. However the speculators taking on risk by trading on the futures market will expect to. return an overall profit from their dealings. Therefore using the futures market must create an extra cost for companies.

However:

- Much of the deficit in goods is made up by a surplus in services, thus reducing the size of the overall current account deficit. The UK has a comparative advantage in financial services based on the activities of the City of London. Edinburgh is also a significant financial centre. The UK attracts inflow of capital investment. - There is no special significant attached to trade in goods. Services have the same potential to generate income and employment - perhaps more. - The UK's comparative advantage in some services is related to the high level of education required, and possibly to English being the international business language. A long history of activity in financial services ensures we have the suitably qualified personnel, and the infrastructure that gives some external economies of scale for bases in London. Weak regulation of financial services and a favourable tax regime may also be factors. - When the TV news speaks of a trade deficit of several billion pounds, non-economists may worry the government has to pay this money (from taxes) to foreign countries and that in some sense e we are losing out. This is incorrect. As an economics student, you will realise that the trade deficit is a private sector matter. When you bought that Sony or Volkswagen product you handed over the money to pay for it. The UK government does not have to pay again. The trade deficit des not mean that the government pays again for the goods you have already bought.

Companies facing a recession at home will still hope to sell in export markets and vice versa:

- Multinational activity - Firths can produce at lowest cost locations, to increase efficiency and cut prices. - Raw materials and components - Can be sourced from the cheapest locations around the world.

The term 'transfers' is used to describe:

- Overseas aid. - Contributions to the budgets of international organisations (e.g. the European Union). - Monet sent overseas by immigrant workers to their families.

The effect on UK companies may include:

- Seeking new ways to reduce costs or accept a profit cut to remain. competitive. They may also reduce prices. therefore, at least for internationally traded goods, a rising exchange rate will cut inflation. - Having to lay off workers if their sales reduce. This will reduce demand in the economy, and again slow down inflation. - UK producers using components and raw materials from abroad. as the cost of these reduces, UK companies may pass the savings on to customers by reducing their prices. The effect of a rising exchange rate on economic growth and employment UK exporters are going to struggle to remain competitive abroad. In home markets, imports are going to have a competitive edge. These are conditions that will lead to many UK firms cutting costs to survive. they will look at all their operations and assess. The conclusions they are likely come to will involve closing less efficient plants and looking to reduce labour costs through redundancies. Words like "restructuring", "rationalisation", "downsizing" and "delayering"will occur frequently in the business pages. the weakest UK firms and those slow to adjust will go out of business.

The disadvantages of fixed exchange rates:

- Speculators over time will notice the divergence if different economies. They will appreciate that the prevailing fixed exchange rates are historic. Some economies will advance rapidly with export-led economic growth and increasing productivity. The relative position of other economies will decline. A shift sooner or later will have to occur in the fixed exchange rates. - Speculators (who always understand economics) will see the opportunity of a one-way bet. As there is only one possible direction for an exchange rate in a fast advancing economy to go, they will begin buying this currency (and selling currencies of countries with the least positive economic outlook). If they are wrong it will probably just be in the timing, and meanwhile they can always extract their money from the foreign exchange market at no loss. This is a bet you can win without much risk: a one-way bet. - Stability in currency markets as a generator of international trade can easily be over-rated. Markets have developed, such as the futures market, where companies can fix the currency value for their trade. Speculators that take the risk of any ups and downs in the currency, and the companies knows exactly what it will receive from its foreign transaction. Note that speculators perform a useful function in markets when they take on risk. - On the issue of devaluing a currency being a soft option - if repeated devaluations occur that is perhaps so. However, as an alternative to stringent fiscal or monetary policies, taking the so-called soft option may be an effective escape rout to a troubled economy, allowing it to avoid unemployment. Why reduce the number of economic options available to a country? Devaluation should be considered on its merits as a possible creating space for ab economy while of low productive are addressed. - Central banks require to hold large reserves if gold and foreign currency to use for intervention in the market to defend fixed exchange rates.

Fixed exchange rates claim to have the following benefits:

- Speculators, for long periods, accept these exchange rates in the knowledge that concerted action from central banks will maintain them making successful speculation difficult. - Stability is created for business in international markets, encouraging trade and foreign investment ad there is certainty that unpredictable currency movements will not impact on profits. - The soft option for governments of devaluing g a currency to recover price competitiveness is not easily available. Rather, they must address underlying economic problems such as inflation or low productivity.

What does SPICED stand for?

- Strong - Pound - Import - Cheap - Exports - Dear

We wil consider four aspects of the EU. These are:

- The Eurozone - Enlargement - The European Central Bank - The common external tariff

Human Development Index (HDI):

- The UN has an index for measuring the level of development of a nation. It combines life expectancy at birth, knowledge and education, and the standard of living. - Combining these three components gives the Human Development Index (HDI). - Knowledge and education is mainly judged through adult literacy rate which have a two third weighting in that section, with the level of enrolment in the education system as the other factor. - Standard of living is measured as gross domestic product per capita. - The HDI top five nations in 2007 were listed as: Norway, Iceland, Australia, Luxembourg and Canada. The UK came fifteenth. - Of the countries that contributed information to allow the calculation of the index, the bottom five nations were: Chad, Mali, Burkina Faso, Sierra Leone and Niger, occupying places 174th to 178th respectively.

The balance of payments is divided into two sections:

- The current account. - The capital and financial account.

Trends in the current account:

- The following is an extract from the annual reference for trade figures, 'The Pink Book 2015'. It covers trade figures up to 2014: - To assess recent developments in the UK's external position, the current account balance into its constituent parts - the trade balance, the primary income balance (income by Uk residents from investment abroad, less income earned by non-residents on their UK investments) and the secondary income balance that captures transfers between the UK and other countries (for example, payments and receipts to or from EU institutions and other international bodies). - It shows that the UK has been recording a current account deficit every year since 1994. From 1998 to 2008, the deficit widened, peaking at 3.6% of nominal GDP in 2008. In subsequent years, the deficit narrowed slightly but - widened thereafter. - Latest figures show that current account deficit widened to 5.1% of nominal GDPin 2014, representing the largest deficit (in annual terms) since our record began in 1948. This deterioration in performance can be partly attributed to the recent weakness in the primary income balance, suggesting that Uk earnings on assets overseas had fallen relative to the earnings of foreign investors in the UK.

The disadvantages of joining the euro include:

- The initial cost of changing currency are large - slot machine changes are one example. - A need for the U&k economy to become largely convergent with the existing Eurozone. Key economic indicators such as stage of the business cycle and inflation will need to be broad,y in line with the existing Eurozone members. - Otherwise, you will be joining a currency with an inappropriate interest rate - hardly a good start! - Losing control of monetary policy. The Uk will have little influence with the European Central Bank and the interest rate it sets could be out of line with UK economic needs. (It could be argued that the current Uk interest rate is typically set in response to the needs of the south-east of Britain and rarely reflects the economic needs of other parts of the UK - so little difference for the Western Isles, then.) - Devaluation is removed from the UK's economic policy options, so the UK will no longer be able to stimulate its economy by devaluating its currency and increasing exports. - The significance of interest rate changes for the Uk economy is greater because of the UK's focus on house purchase, rather than rental. The Uk is more sensitive to interest rate changes than other countries. This adds weight o the argument to retain control of interest rates by not joining the Eurozone. - Increased regional aid within Europe will be needed to offset economic inequalities that can no longer be addressed through national currency realignments. As one of the richer nations the Uk may be a net contributor of this funding. - If some Eurozone members increase their borrowings and national debt, this will lead to the single interest rate rising throughout the zone. - The euro is essentially a fixed exchange rate arrangement, and in time may be subject to the same pressures from diverging economies that fixed rates have always been subject to. In early 2008 it was reported that, with Spain moving towards recession, there were already those arguing to leave the euro.

To create our example of absolute advantage we must simplify the world's complex trading patterns. Assume that:

- There are only two nations. - And there only two products. To make the example straightforward, we need to select two very diverse countries. Australia and Belize. We also need to select two diverse products as the only two products in our world: aircraft and bananas. This selection of two countries and products with the initials 'a' and 'b' will assist you in remembering this example is about absolute advantage. Now we need to compare two positions, before trade

To create our example, we must again make assumptions to simplify the world's complex trading pattens. Use therefore assume that:

- There are only two nations. - There are only two products. - Transport costs are negligible. - Our inputs are homogeneous factors of production. - These factors are flexible in change use as required.

Floating exchange rates are claimed to have the following benefits:

- They adjust constantly to the prevailing economic conditions and thus speculators are unable to spot a misalignment of the currency that would provide an opportunity for speculation. - If large-scale intervention by a central bank to support a currency is no longer going to take place than large reserves of gold and foreign currency aren't required. - The economic problems such as inflation or unemployment that can be exacerbates by too high or too Loe a currency value can be avoided. The currency adjusts constantly and automatically to select prevailing economic conditions. The market mechanism of supply and demand is relied upon to set an appropriate exchange rate.

Enlargement can create problems for the UK:

- UK workers will face more competition in the labour market and heir wage less likely to rise (however, unemployment may not rise, because much of the money earned by foreign workers will be spent in the UK and thus they create jobs as well as take jobs.) - Subsides for the economic development of the new members may be expensive for richer countries such as the UK. The UK will be a contributor to the EU budget through CAP and regional aid. - Firms may move manufacturing to to the new members countries to take advantage of lower costs (e.g. wages) and this will lead to some job losses in the UK.

The gains for consumers are:

- Variety - new products from around the world. - Choice - greater variety of brands to select from. - Price - lower prices because of the increased competition. - Quality - competition encourages quality improvements and innovation.

The disadvantages of trade are:

- Workers (especially less-skilled workers) may lose their jobs to lower-wage economies as firms move production overseas. - Local firms ma go out of business in the face of efficient competition from low cost locations. The resulting unemployment may be concentrated in one region. - Workers will need to be flexible and retrain, or move to a new location. - The movement of goods around the planer will add to pollution. - Reliance on imports for some products may impinge on national security. For example, a dependence on imported armaments may be a weakness in time of conflict.

How does a falling exchange rate logically work?

A falling exchange rate logically works in the opposite way to a rising exchange rate. As a student, you have a shortcut to completing your understanding of the effects of changing exchange rates. If you have followed the reasoning in the previous sections on rising exchange rates, it should not be difficult to work out the effects of a falling exchange rate.

What is a "dirty" float?

A floating exchange rate that is manages by central bank intervention in the market. The government has a clear view on what the value of its "floating" exchange rate should be. Through its central bank it buys and sells on the market to influence the currency value.

What is a multinational?

A multinational is a company that is based in one country, but also has production or service facilities in other countries. It should not be confused with companies that merely export from their home base. Most of the world's largest companies are multinationals, for example Ford, Nestle and BP. You can probably name some other example off the top of your head.

Developing country case study 1: Malawi

Age structure: 0-14 years: 47%, 15-64 years: 50%, 65+ years: 3%, median age: 16.3 years. Exports: tobacco, tea, sugar, cotton, coffee, peanuts. Foreign debt: $1,556 million. GDP per capita: $900 Imports: food, petroleum products, semi-manufactures, consumer goods. Infant mortality rate: 48 per thousand. Labour force by occupation: agriculture: 90%, industry and services: 10% Life expectancy: 60 Literacy rate: 75% Major infectious diseases: bacterial and protozoal diarrhoea, hepatitis A, typhoid fever, malaria, schistosomiasis. Below poverty line: 53% of population.

The effect of a rising exchange rate on the economy:

Exchange rates cause changes in other economic variables. We will now look closely at the effect a changing exchange rate can have on the levels of exports and imports, the inflation rate, economic growth and the level of employment. When the pound increases, the price of UK exports in foreign markets will rise.

Surpluses and deficits:

Focussing firstly on the current account section, the following can be noted. The UK has a trade in services surplus. Combined in the current account, the total for trade in goods and services shows an overall current account deficit (imports exceed exports). This indicates that the surplus in services is smaller than the deficit in goods, thus giving an overall deficit in goods and services.

The effect of a rising exchange rate on inflation:

It has already been established that importers are able to reduce their prices when the exchange rises. In the example, BMWs and Mercedes were going to be cheaper in the UK. Imports are items we buy and therefore feature in the consumer price index (CPI) which is the measure of inflation. If some items in the CPI are reduced in price then the index will rise more slowly so inflation slows down.

What is an exchange rate determined by?

It is determined y market conditions. The market is called the foreign market, sometimes abbreviated to FOREX. In this market, demand and supply interact to create the market price for a currency.

What is 'Other investment'?

It is the label attached to finial hot money flows and this section can be volatile.

What is 'Portfolio investment'?

It is the purchase of shares in foreign firms, and is also in the capital and finial account.

Labour productivity:

Labour productivity has grown on average by 1.8% per year between 1980 and 2015. However, since the economic downturn in 2008 and 2009, productivity growth has increased much more slowly compared with its pre-downturn peak, fluctuating between - 1% and 1% per year. This recent weakness of UK labour productivity relative to its longer term trend has been labelled the 'productivity puzzle' and is likely to be caused by a number of factors, including weak consumer demand and business deciding to retain staff until demand picks up.

Costs of production:

Minimising costs of production is vital. To reduce costs, companies find locations where wages are lower and/or raw materials are cheaper. Transport and distribution costs to major markets cannot be overlooked and will come into the final decision. An additional factor may be the existence of tariff or other trade barriers between nations, which could greatly restrict the choice of location.

After-trade output:

Next we allow trade between these nations. the inefficiency producers are undercut by imports. It is no longer profitable for Australia to grow bananas or for Belize to make aircraft. If these products are produced in inefficient locations than the opportunity cost is high. Both countries specialise in what they are best at. All 100 factors are devoted to one product. By specialising and trading, total output has risen by 25 aircraft (100 after trade less 75 before trade) and 40 tons of bananas (100 after less 60 before). There was no increase in factor inputs. Factors of production (scarce resources) have merely been more efficiently used.

Debt:

Small incomes and little business activity mean that the tax base for the governments of less developed countries to raise income from is tiny. Governments will have budget deficits because they try to meet many demands for funds but have little income. They borrow from abroad and get into debt problems. The interest payments on their debts are an additional charge every years.

European Central Bank (ECB):

The European Central Bank is the monetary authority for the Eurozone. It performs a role in setting interest rates that is similar to the Bank of England's role as the UK's central bank. As the central bank for the euro currency, the ECB's central aim is to maintain the purchasing power of the euro by setting an interest rate that ensures low inflation across the Eurozone.

Component elements of the current account:

The UK balance of trade has rarely been in the black (visible exports greater than visible imports) in recent history. Balance of trade deficits are the norm for the UK. Services are also traded. Curiously, they are termed 'invisibles' in trade terminology. It does seem a little strange to be counting invisibles. Services are quite difficult to describe other than by giving examples.Often they are said to be intangible, which at least has the advantage of being easily remembering if goods are tangible. A service generates a receipt or an accounting entry. If you buy insurance for your greek owned Panamanian registered, oil tanker at Lloyds London, you will pay the Uk company for the insurance. They will give you an insurance document in return and ring the Lutine Bell if it sinks! As the service has been provided by a Uk company and the price charged is paid into the UK, this would count as an invisible export. The UK invisible balance has been in surplus (invisible exports exceed invisible imports) for many years.

Balance of payments:

The balance of payments is a balance sheet. as a accountant will tell you, a balance sheet is supposed to balance. Evert transaction that goes into a balance sheet is a subject to a system called double entry accounting. The value of the item purchased is entered on one side of the accounts and how you paid for it (the same value) is entered on the other side. An accountant would sat "every debit has a credit". Therefore, technically, the final figures on the balanced of payments always balance. When it doesn't, an entry "errors and omissions" is made to force the balance.

Capital and financial account:

The capital and financial account (previously known as raw capital account) measures money flows that are connected to investment and savings. The capital and financial account includes foreign direct investment. This happens when a company builds an overseas factory. It is capital investment in fixed assets, that will generate current account money flows for years ahead. An example of this is the Japanese based firm Nissan building a factory in Sunderland. It works in both directions as UK based firms also invest overseas. Changes in the UK's official reserves of gold and foreign currency are also recorded in this section.

The demand for sterling:

The demand for sterling comes from the purchase of UM exports by foreign consumers and companies. The consumers pay in local currency and are unaware of their involvement, but somewhere down the supply chain an importer will need to convert the local cash into pounds because the UK producer expects to be paid in pounds. The foreign currency is presented (supplied) by the importer's bak to the foreign exchange market and pounds are demanded. It follows that export success helps to drive the value of a country's currency upwards because it increases demand for that currency. Apart from purchases of UK goods and services by foreign consumers and companies, foreign firms will need to obtain pounds they are investing in the UK.

Dependence on primary products:

The economies of developing countries may have 90% of their workforce in agriculture. The main export is typically an agricultural crop, and the country's balance of trade depends on a successful harvest and world prices for that product. Sometimes a mineral is mined, but much of the profit goes overseas.

Methods of reducing current account deficits:

The holy grail of economic policy in this area is export-led growth of the type enjoyed by Germany. This requires a highly efficient economy, the output of which competes successfully in world markets. Supply side policies are aimed at improving the competitiveness of the UK economy.

What does the theory of absolute advantage show?

The theory of absolute advantage shows that trade has the potential to increase the efficiency with which the world's scarce resources are used. By increasing efficiency, trade can increase world output from the same amount of inputs. Any increase in world output contributes to reducing poverty on the planet, providing the benefits are distributed in away that reaches the poorest.

Comparative advantage:

The theory of competitive advantage refers to this situation - one nation has an efficiency advantage in making both products. We will test what happens if the advanced nation specialises in the product that it has the greatest efficiency advantage producing. This means we have to compare the efficiency advantages to find out which product the advanced nation has the greatest comparative advantage making.

Levels of development:

There are many labels given to groups of economies at different stages of development. Some of these labels even overlap each other. A section of labels would include: "tiger economies", "big emerging market economies" (BEMs), first world nations, industrialised nations, less economically developed countries (LEDCs) and the most economically developed countries (MEDCs).

Risk:

There are political and economic risks to consider. What are the chances of a violent revolution? Will the exchange rate of the currency move against you? Could there be an epidemic or a natural disaster such as a flood?

What are the most important sources for UK imports of goods?

They are the European Union, the United States, China and Norway. The most important sources for UK imports of services are very similar. The higher positions of Spain, Greece and Portugal will reflect the importance of UK tourists to these countries.

Developing countries:

They can be identified by items such as average income, life expectancy and literacy rate. These are outcomes created by the weaknesses developing countries have with their resource inputs. Looking at the factors of production (resources) one by one, it will be possible to spot problems with either the quality of each factor or the quality of it. It is a good idea, for memorising, to organise your thoughts in a systematic way. When it comes ton the problems facing less developing countries, one approach is to take the four factors of production in turn and recite quality and quantity issues they face: natural resources, Human resources, man-made resources and entrepreneurs.

Man-made resources (capital):

They will be of poor quality. Operating at near substitence level there will be no surplus put aside to assist with future production. Machinery will tend to be cheap and basic when it does exist. The lack of social capital and infrastructure such as roads and harbours will make the country unattractive to foreign investors. A lack of saving will lead to a lack of funds being recycled into investment. The banking will be poor.

Entrepreneurs (enterprise):

They will exist on a small scale in local markets. Any excess farm output will find its way to a market stall. The growth of enterprise is dependent on the availability of capital to invest, and partly on the education levels of the entrepreneurs. The number of entrepreneurs and the size of companies will be restricted by the small incomes of consumers.

Natural resources (land):

They will not be fertile. Either the climate or the soil type prevent it from producing plenty. If it is fertile, then it may be prone to seasonal flooding or drought. Crop yields will either be low, or not reliable. Mineral deposits will be limited, or difficult to access. Those mines that do exist will be owned by multi-nationals and the workers may be poorly paid with the profits going to shareholders in developing countries.

Natural resources (land):

They will not be fertile. Either the climate or the soil type will prevent it from producing plenty. If. it is fertile, then it may be prone to seasonal flooding or drought. Mineral deposits will be limited, or difficult to access. Those mines that do exist will be owned by multi-nationals and the workers may be poorly paid with the profits going to shareholders in developed countries.

Human resources (labour):

They will not be skilled. The education system will be poor and literacy rates low. As a results labour productivity will be low, and foreign investment will not be attracted. Workers may be weakened by malnutrition or disease. Life expectancy will be low. There may be a burgeoning young population of dependents but quite a small population of working age. The number of able workers of working age will. be restricted by health issues.

UK Perspectives 2016: Trends in the UK economy May 25th, 2016

This article presents some key data on the Uk economy and Uk economic policy from 1980 until present day, and covers three themes - economic output and trade, inflation and interest rates and public sector fiancées (deficits and debts). Other economic aspects have ben covered elsewhere in the UK Perspectives series, which presents an overview of the social and economic changes that have occurred in the Uk over the last three decades.

Markets:

This is major factor. Developing local markets is often crucial to success, and multinationals may withdraw from markets where they cannot reach a suitable level of customer demand and are consequently unable to deliver the economies of scale that lead to profit.

exports and imports continue to increase, but the Uk has run a trade deficit since 1998:

Trade balance equal exports minus imports. A country has a trade surplus if it exports more than it imports (positive trade balance). A trade deficit occurs if a country imports more than it exports (negative trade balance). International trade can benefit consumer and producers, providing them with a wider range of goods and services. In the UK imports and exports have been growing over time, both increasing by almost 90% since 2000. However, imports have been higher than exports since the late 1990s - meaning the UK has been running a trade deficit. The last time the UK ran a trade surplus was in 1997. The UK balance of trade can be looked at in more detail breaking it down into goods and services. The UK tends to run a deficit on its trade in goods (imports of goods exceed exports of goods), but a surplus on its services (exports of services exceed imports of services) balance of trade.

Infrastructure - this is a broad term which when we can divide into three components:

Transport - Are the road, rail, sea and air links sufficient to allow the firm to operate efficiently and without unpredictable delays in getting goods to the market? Technology - Does the country have access to the latest information and communications systems and will these systems function adequately? Institutional - Is there a framework of business and contract law that facilitates business?

The supply of Sterling

UK consumers and companies purchasing imports will supply pounds to the foreign exchange market for conversion into the currency they require. UK companies investing overseas to do the same. Speculators can become involved in selling currencies and the Bank of England may also supply pounds to the market if it prefers the pound not to rise in value. Hot money can leave the UK as quickly as it arrives with one phono call or a tap on a computer. When the supply of pounds is greater than demand then the exchange rate of the pound will fall.

These are several problems associated with the methods of aid described above:

- All loans increase the debt interest, which then weight on future government budgets. - Aid may encourage dependency rather than self-sufficiency. - It may create problems for local businesses if they are compete with free or subsidised products. The incentive of profit is needed by entrepreneurs. - Political corruption may stop aid reaching those in greatest need. - Bilateral aid may be tied to purchasing from the diner country. This may not be the best option as, for example, you might finish up with second- rate tractors. -Multilateral aid from the IMF or the World Bank usually attaches strings. Balanced budgets and free market solutions are sometimes conditions required by these organisations and in the short-run this can make the poor poorer. - Grants may be available for prestigious infrastructure projects, but will thwart then be any money available in future years to run and maintain the finished dams and airports.

Who led the rival sides in the campaign?

- Britain Stronger in Europe- the main cross-party group campaigning for Britain to remain in the EU was headed by former Marks and Spencer chairman Lord Rose. It was backed by key figures from the Conservative party, including Prime Minister David Cameron and Chancellor George Osborne, most Labour MPs, including party leader Jeremy Corbyn and Alan Johnson, who ran the Labour in for Britain campaign, the Lib Dems, Plaid Cymru, the Alliance Party and the SDLP in Northern Ireland, and the Green Party. Who funded the campaign: Britain Stronger in Europe raised £6.88 million, boosted by two donations totalling £2.3 million from the supermarket magnate and Labour peer Lord Sainsbury. Other prominent remain donors included hedge fund manager David Harding (750,000), businessman and Travelex founder Lloyd Dorfman (£500,00) and the Tower Limited Partnership (500,00) . The SNP ran its own remain campaign in Scotland as it did not want to share a platform with the Conservatives. Several smaller groups also registered to campaign. - Vote Leave - A cross-party campaign that has the backing of senior Conservatives such as Micheal Gove and Boris Johnson plus a handful of Labour MPs, including Gisela Stuart and Graham Stringer, and UKIP's Douglas Carswell and Suzanne Evans, and the DUP in Northern Ireland. Former Tory chancellor Lord Lawson and SDP fonder Lord Owen were also involved. It had a string of afflicted groups such as Farmers for Britain, Muslims for Britain and Out and Proud, a ay anti-EU group, aimed at building support in different communities. Who funded the campaign: Vote Leave raised £2.78 million. Its largest supporter was businessman Patrick Barbour, who gave £500,000. Former Conservative party treasury Peter Cruddas gave a £350,000 donation and construction mogul Terrence Adams handed over £300,000. Who else campaigned to Leave: UKIP leader Nigel Farage is not part of Vote Leave. His party ran it'd own campaign. The Trade Union and Socialist Coalition is also running its own out campaign. Several smaller groups also registered to campaign.

Characteristics of emerging economies Emerging economies do not all have an identical profile, but several of the following characteristics will be found in each one:

- Political stability - it may involve a strong and charismatic leader who may or may not be democratically elected. Singapore is an excellent example with its first prime minister from independence in 1959 until 1990, Lee Kwan Yew. - Free trade and open markets - encouraging trade, entrepreneurs and foreign investment and the presence of multinationals. - High levels of foreign investment and the presence of multinationals. - A move away from dependence on primary production such as crops or mineral resources and into areas where value is added to products - manufacturing and services. - High levels of government debt, but it is invested effectively in developing infrastructure to support and development the economy - eduction, healthcare, water and sanitation. - High rates of economic growth. Rapidly improving technology and increasing productivity of labour drive up output. - Rising standards of living. - Birth control is often encouraged in emerging economies. In the late 1960s Singapore began a "stop at two" family planning campaign encouraging sterinslation after two children and reducing economic benefits for third and fourth children.

What happens to UK citizens working in the EU?

A lot depends on the kind of deal the UK agrees with th EU, if it remains within the single market, it would almost certainly retain free movement rights, allowing UK citizens to work in the EU and vice versa. If the government opted to impose work permit restrictions, then other countries could reciprocate, meaning Britons would have to apply for visas to work.

Why is Britain leaving the European Union?

A referendum - a vote in which everyone (or nearly everyone) of voting age can take part - was held on Thursday 23rd June, to decide whether the UK should leave or remain in the European Union. Leave won by 52% to 48%. The referendum turnout was 71.8%, with more than 30 million people voting.

What is the 'red tape' that opponents of the EU complain about?

According to the Open Europe think tank, four out of the top five most costly EU regulations are either employment or environment-related. The UK renewable energy strategy, which the think-tank sats costs £4.7 billion a year, tops the list. The working time directive (£4.2 billion a year) - which limits the working week to 48 hours - and the temporary agency workers directive (£ 2.1 billion a year), giving temporal staff many of the same rights as permanent ones - are also on the list. There is nothing to stop a future UK government reproducing in British law following the decision to leave the EU, And the costs of so-called "red tape" will not necessarily disappear overnight - if Britain opted to follow the "Norway model" and remained in the European Economic Area most of the EU-derived laws would remain in place.

What about the Supreme Court's decision on Article 50?

After a court battle, the UK's Supreme Court has ruled that Parliament must be consulted before Article 50 is invoked. This means legislation will be prepared for MPs and Lords to vote on. The verdict was not what the government argued for, but ministers have insisted it will not delay their planned timetable. Most MPs are expected to vote in. favour of Article 50 being triggered, although there could be attempts to amend the draft legislation

What about Eu nationals who want to work in the UK?

Again, it depends on whether the UK government decides to introduce a work permit system of the kind that currently applies to non-EU citizens, limiting entry to skilled workers in professions where there are shortages. Citizens' Advice has reminded people their rights have not changed yet and asked anyone to contact them if they think they have been discriminated against the following Leave vote. Brexit Secretary David Davis has suggested EU migrants who come to the UK as Brexit nears may not be given the right to stay. He has said there might have to be a cut-off point if there was a "surge" in new arrivals.

What is an exchange rate?

An exchange rate at which one currency can be converted into another. It is the value of one currency priced in a different currency.

Will the UK be able to rejoin the EU in the future?

BBC Europe editor Katya Adler says the UK would have to start from scratch with no rebate, and enter accession talks with the EU. Every member state would have to agree to the UK re-joining. But she says with elections looking elsewhere in Europe, other leaders might not be generous towards any UK demands. New members are required to adopt the euro as their currency, once they meet the relevant criteria, although the UK could try to negotiate an opt-out.

What does it mean for Northern Ireland?

Before his resignation Deputy First Minister Martin McGuinness said the impact in Northern Ireland would be "very profound" and that the whole island of Ireland should now be able to vote on reunification. But, speaking while she was still Northern Ireland Secretary, Theresa Villiers ruled out the call from Sinn Fein for a boded poll, saying the circumstances in which one would be called did not exist. The land border is likely to be a key part of the Brexit talks. Theresa May said a priority for her would be negotiating a deal with the EU which allowed a common travel area between the UK and the Republic of Ireland.

What about business?

Big business - with a few exceptions - tended to be in favour of Britain staying in the EU because it makes it easier for them to move money, people and products around the world. Given the crucial role of London as a finial centre, there's interest in how many jobs may be lost to other hubs in the EU. Four of the biggest US banks have committed to helping maintain the City's position. But HSBC will move up to 1,000 jobs to Paris. Some of Uk exporters say they've had increased orders or enquired because of the fall in the value of the pound. Pest control form Rentokil Initial says it could make £15 mil.lion extra this year thanks to a weaker currency. Others are less optimistic. Hilary Jones, a director at UK cosmetics firm Lush said the company was "terrified" about the economic impact. She added that while the firm's Dorset factory continue to produce goods for the Uk market, products for the European market may be made at its new plant in Germany.

What has happened since the referendum?

Britain got a new Prime Minister - Theresa May. The former Home Secretary took ver from David Cameron, who resigned on the day after losing the referendum. Like Mr Cameron, Ms May was against Britain leaving the EU but she says she will respect the will of the people. She has said "Brexit means Brexit" but there is still a lot of debate about what that will mean in practice especially on the two key issues of how British firms do business in the EU and what curbs are brought in on the right of EU nationals to live and work in the UK. She sets out more details of her negotiating hopes in her ey speech on Brexit.

The Eurozone:

By 2015 the number of members of the euro had grown to 19. Twelve of the EU members started using the euro on 1st of January 2002. These countries formed the Eurozone and pooled their monetary policy. A single currency requires only a single interest rate. The European Central Bank was created to manage a Eurozone-wide monetary policy.

How will pensions, saving, investments and mortgages be affected?

During the referendum campaign, David Cameron said so-called "triple-lock" for state pensions would be threatened by a UK exit. This is the agreement by which pensions increases by at least the level of earning, inflation or 2.5% every year - whichever is the highest. But his successor Theresa May has said she will keep it in. place, at least for the current Parliament which is due to last until 2020. So far there has been a cut in interest rates, which has helped keep mortgages and other borrowing rates low. There are yet to be signs that rising inflation have worried the Bank of England enough to consider raising interest rtes. But if that happened it would make mortgages and loans more expensive to repay - but would be good news for savers.

The advantages of trade:

Encouraging trade may be a better solution. Major economic trading areas such as the European Union have external tariff that unfairly keep out imports from less developed countries. These less developed countries would gain from profits made by selling in developed markets. These could be re-invested and economic progress would take hold. Enterprise would be encouraged. Jobs would be created and tax base expanded. Foreign investment would be more likely, bringing with it technology. A positive multiplier effect would spread to other areas of the economy. The trade balance would be improved.

What was the breakdown across the UK?

England voted for Brexit, by 53.4% to 46.6%, as did Wales, with Leave getting 52.5% of the vote and Remain 47.5%. Scotland and Northern Ireland both backed staying in the EU. Scotland backed Remain by 62% to 38%, while 55.8% in Northern Ireland voted Remain and 44.2% Leave.

The likely focus of negotiations between the UK and EU:

Following May's Brexit recent speech we now know the UK is not intending to stat in the EU's single market. Although there has been speculation for months about the issue, it would have meant the UK staying under the auspices of the European Court of Justice and having to allow unlimited EU immigration, under freedom of movement rules. Both sides want trade to continue after Brexit with the Uk seeking a positive outcome for those who wish to trade goods and services - such as those in the City of London and wanting a "comprehensive free trade deal" giving the Uk "the greatest possible access" to the single market. Mrs May says she wants the UK to reach a new customs union deal with the EU. A customs union is where countries agree not to impose tariffs on each others' goods and have a common tariff on goods coming in from elsewhere. The UK is currently part of the EU customs union but that stops the UK being able to do its own trade deals with other countries.

So when will Britain actually leave it?

For the UK to leave the EU it has to invoke an agreement called Article 50 of the Lisbon Treaty which gives the two sides two years to agree the terms of the split. Theresa May has said she intends to rigger this process by the the end of March 2017, meaning the Uk will be expected to have left by the summer of 2019, depending on the precise timetable agreed during the negotiations. The government will also enact a Great Repeal Bill which will end the primacy of negotiations. The government will also enact a Great Repeal Bill which will end the primacy of EU laws in the UK. It is expected to incorporate all EU legislation into UK law in one lump, after which the government will decide over a period of time which parts to keep, change or remove.

Goods as component elements of the current account:

Goods are tangible objects. Goods of all sorts are termed 'visible' in trade talk, presumably because you possess the object and can look at it or show it to somebody else. The difference between visible exports and visible imports has a particular title. It is called the balance of trade.

What does Brexit mean?

It is a word that has become used as a shorthand way of shorthand way of saying the UK leaving the EU - merging the words Britain and exit to get Brexit, in a same way as a possible Greek exit from the euro was dubbed Grexit in the past.

What is the current account?

It measures income flows during the year. The most significant items in this section are payments for exports and imports of both goods and services. Non-trade items in the current account include investment income (repatriation of profits and dividends). The transfer of interest payments from money in overseas accounts is also included in the current account. You may see this summarised as IPD (interest, profits and dividends).

Could there be a second referendum?

It seems highly unlikely. Both the Conservatives and the Labour Party have ruled it out. Arguing that it would be a undemocratic breach of trust with the British people who clearly voted to Leave. The Liberal Democrats - who have just a handful of MPs - have vowed to halt Brexit and keep Britain in the EU if they were to win the next general election. Some commentators, including former House of Commons clerk Lord Lisvane, have argues that a further referendum would be needed to ratify whatever deal the UK hammers out with the EU, but there are few signs political leaders view this as a valuable option.

How long will it take for Britain to leave the EU?

Once Article 50 has been triggered, the UK will have two years to negotiate its withdrawal. But no one really knows how the Brexit process will work - Article 50 was only created in late 2009 and it has never been used. Former Foreign Secretary Philiip Hammond, now Chancellor, wanted Britain to remain in the EU, and he has suggested it could take up to six years for the UK to complete exit negotiations. The terms of Britain's exit will have to be agreed by 27 national parliaments, a process which could take some years, he has argued. EU laws still stands in the UK until it ceases being a member. The UK will continue to abide by EU treaties and laws, but not take part in any decision-making.

Shoppers will need to keep a close eye on how much they are spending:

People travelling overseas from the UK have found their pounds are buying fewer euros or dollars after the Brexit vote. The day-to-day spending impact is likely to be more significant. Even if the pound regains some of its value, currency expects it to remain at least 10% below where it was on 23rd June, in the long term. This means imposed goods will consequently get more expensive - some prices risen for food, clothing and homeware goods have already been seen and the issue was most notably illustrated by the dispute between Tesco and Marmite's makers about whether prices would be put up or not in the stores. The latest UK inflation figures, for December, showed the CPI inflation rate jumping to 1.6%, its highest level for two years with signs of more cost pressures set to feed through in the months to come.

Will immigration be cut?

Prime Minister Theresa May has said one of the main messages she has taken from the Leave vote is that the British people want to see a reduction in immigration. She has said this will be a focus Brexit negotiations. As mentioned above, the key issue is whether other EU nations will grant the access to the single market, if that is what it wants, while at the same time being allowed to restrict the rights of EU citizens to live and work in the UK. May has said she remains committed to getting net migration - the difference between the numbers entering and leaving the country - down to a "sustainable level, which she defines as being below 100,00 a year. It is currently running at 330,000 a year, of which 184,000 are EU citizens, and 188,000 are outside the EU - the figures include a 39,00o outflow of UK citizens.

Will cars need new number plates?

Probably not, because there's non EU-wide law on vehicle registration or car number places, and the EU flag symbol is a voluntary identifier and not compulsory. The DVLA says there has been no discussion about what would happen to plates with the flag if the UK voted to leave.

If I retire to Spain or another EU country will my healthcare costs sill be covered?

Retirement plans are one of those issues where it is not possible to say definitively what would happen. At the moment, the large British expat community in Spain gets free access to Spanish GPs and their hospital treatment is paid for by the NHS. After they became permanent residents Spain pays for their hospital treatment. Similar arrangements are in place with other EU countries. If Britain remains in the single market, or the European Economic Area as it is known, it might be able to continue with this arrangement, according to a House of Commons library research note. If Britain has to negotiate trade deals with individual member states, it may opt to continue paying for expats' healthcare through the NHS or decide that they would have to cover their own costs if they continue to live abroad, if the country where they live declines to do so.

What does this mean for Scotland?

Scotland's First Minister Nicola Sturgeon said in the wake of the Leave result that it is "democratically unacceptable" that Scotland faces being taken out of the EU when it voted to Remain. A second independence referendum for the country is now "highly likely", she has said, although not in 2017. She has said she wants Scotland to stay in the single market and said Mrs May's decision to rule out the UK staying in the single market "undoubtedly" brings the referendum closer.

What is the European Union?

The EU is an economic and poetics partnership involving 28 European countries. It began after WWII to foster economic co-operation, with the idea that countries which trade together are more likely to avoid going to war with each other. It has since grown to become a "single market" allowing goods and people to move around, basically as if the members states were one country. It has its own currency, the euro, which is used by 19 of the member countries, its own parliament and it now sets rules in. a wide range of areas - including on the environment, transport, consumer rights and even things such as mobile phone charges.

Will Britain be party to the Transatlantic Trade and Investment Partnership?

The Transatlantic Trade and Investment Partnership - or TTIP - currently under negotiation between the EU and the USA will create the biggest free trade area the world has ever seen. Cheerleaders for TTIP, including former PM David Cameron, believe it could make American imports cheaper and boost British exports to the USA to the time of £10 billion a year. But many on the left, including Labour leader Jeremy Corbyn, fear it will shift more power to multinational corporations, undermine public services, wreck food standards and threaten basic rights. Quitting the EU means the UK will not be part of TTIP. It will have negotiate its own trade deal with the USA.

Who wanted the Uk to leave the EU?

The UK Independence Party, which received nearly four million votes - 13% of those case - in May's general election, has campaigned for many years for Britain's exit from the EU. They were joined in their call during the referendum campaign by about half the Conservative Party's MPs, including Boris Johnson and five members of the then Cabinet. A handful of Labour MPs and Northern Ireland partite UUP were also in favour of leaving.

What about the economy?

The UK economy appears to have weathered to the initial shock of the Brexit vote, although the value of the pound remains near a 30-year-low, but opinion is sharply divided over the long-term effects of leaving the EU. Some major firms such as Easyjet and John Lewis have pointed out that the slump in sterling has increased their costs. Britain also lost its top AAA credit rating, meaning the cost of government borrowing will be hogher. But share prices have recovered from a dramatic slump in value, with both the FTSE 100 and the broader FTSE 250 index, which includes more British-based businesses, trading higher than before the referendum. The Bank of England cut interest rates from 0.5% to 0.25% - a record low and the first cut since 2009 - after the vote and there has not been the economic slump or recession that some had predicted. Here is a regularly updated detailed rundown of how Britain's economy is doing.

How much does the Uk contribute to the EU and how much do we get in return?

The UK is one of the 10 member states who pay more into the EU budget than they get out, only France and Germany contribute more. In 2014/15, Poland was the largest beneficiary, followed by Hungary and Greece. The UK also gets an annual rebate that was negotiated by Margret Thatcher and money back, in the form of regional development grants and payments to farmers, which added up to £4.6 billion in 2014/15. According to the latest Treasury figures, the UK's net contribution for 2014/15 was £8.8. billion - nearly double what it was in 2009/10. The National Audit Office, using a different formula which takes into account EU money paid directly to private sector companies and universities to fund research, and measured over the EU's finical year, shows the UK's net contribution for 2014 was £5.7 billion.

What happens to EU citizens living in the UK?

The government has declined to give a firm guarantee about the status of EU nationals currently living in the UK, saying this is not possible without a reciprocal pledge from other EU members about the millions of British nationals living the continent. EU nationals with a right to permanent residence, which is granted after they have lived in the UK for five years, will be able to stay, the chief civil servant at the Home Office has said. The rights of other EU nationals would be subject to negotiations on Brexit and the "will of Parliament", he added.

Some say we could still remain in the single market - but what is a single market?

The single market is seen by its advocates as the EU's biggest achievement and one of the main reasons it was set up in the first place. Britain was a member of a free trade area in Europe before it joined what was then known as the common market. In a free trade area countries can trade with each other without paying tariffs - but it is not a single market because the member states do not have to merge their economies together. The European Union single market, which was completed. in 1992, allows the free movement of goods, services, money and people within the EU, as if it was a single country. It is possible to set up a business or take a job anywhere within it. The idea was to boost trade, create jobs and lower prices. But it requires common law-making to ensure products are made to the same technical standards and imposes others rules to ensure a "level playing field." Critics say it generates too many petty regulations and robs members of control over their own affairs. Mass migration from poorer to richer countries has also raised questions about the free movement rule.

Who wanted the UK to stay in the EU?

Then Prime Minister David Cameron was the leading voice in the Remain campaign, after reaching an agreement with other EU leaders that would have changed the terms of Britain's membership had the country voted to stay in. He said the deal would give Britain "special" status and help sort out some of the things British people said they didn't like about the EU, like high levels of immigration - but critics said the deal would make little difference. 16 members of Mr Cameron's Cabinet, including the women who would,ld replace him as PM, Theresa May, also backed staying in. The Conservative Party was split on the issue and officially remained neutral in the campaign. The Labour Party, Scottish National Party, Plaid Cymru, the Green Party and the Liberal Democrats were all in favour of staying in. US president Barack Obama also wanted Britain to remain in the EU, as did other EU nations such as France and Germany.

What do "soft" and "hard" Brexit mean?

These terms have increasingly been used as a debate focused on the term if the UK's departure from the EU. There is no strict definition of either, but they are used refer to the closeness of the UK's relationship with the EU post-Brexit. So at one extreme, "hard" Brexit could involve the Uk refusing to compromise on issues like the free movement of people in order on other to maintain access to the EU single market. At the other end of the market the scale, a "soft" Brexit might follow a similar path to Norway, which is a member of the single market and had to accept the free movement of people as a result.

Will EHIC cards be valid?

They are at the moment but no-one knows the longer term prospects for definite. The EHIC card - which entitles travellers to state-provided medical help for any condition or injury that requires urgent treatment, in any other country within the EU, as well as several non-EU countries - is not an EU initiative. It was negotiated between countries within a group known as the European Economic Area, often simply referred to as the single market (plus Switzerland, which confusingly is not a member of the EEA, but has agreed access to the single market). Therefore, the future of Britons' EHIC cover could depend on whether the UK decided to sever tiers with the EEA.

What were their reasons for wanting the UK to leave?

They said Britain was being held back by the EU, which they said imposed too many rules on business and charged billions of pounds a year in membership fees for little in return. They also cited sovereignty and democracy, and they wanted Britain to take back full control of its borders and reduce the number of people coming here to live and/or work. One of the main principles of EU membership is "free movement", which means you don't need to get a visa to go and live in another EU country. The Leave campaign also objected to the idea of "ever closer union" between EU member states and what they see as moves towards the creation of a "United States of Europe".

What impact will leaving the EU have on the NHS?

This became an issue in the referendum debate after the Leave campaign claimed the money Britain sends to the EU, which it claims is £350 million a week, could be spent on the NHS instead. Health Secretary Jeremy Hunt warned that leaving the EU would lead to budget cuts and an exodus of overseas doctors and nurses. The Leave campaign dismissed his intervention as "scaremongering" and insisted the EU membership fees could be spent on domestic services like the NHS. Former Labour health secretary Lord Owen has said that because of TTIP the only way to protect the NHS from further privatisation was to get out go the EU.

What were their reasons for wanting the UK to stay?

Those campaigning for Britain to stay in the EU said it gets a big boost from membership - it makes selling things to others EU countries easier and, they argued, the flow of immigrants, most of whom are young and keen to work, fuels economic growth and helps pay for public services. They also said Britain's status in the world would be damaged by leaving and that we are more secure as part of the 28 nation club, rather than going it alone.

What are Synergies?

Trade creates synergies. A synergy describes a situation where the sum is greater than its parts. The gains from trade outnumber any disadvantages. Politicians recognise the gains from trade and devote much energy to creating free trade areas such as the European Union. Trade increases economic growth and the resulting rise in standards of living assists politicians in their re-election.

Why will Brexit takes so long?

Unpicking 43 years of treaties and agreements covering thousands of different subjects was near going to be a straightforward task. It is further complicated by the fact that it has never been done before and negotiators will, to some extent, be making it up as they go along. The post-Brexit trade deal is likely to be the most complex part of the negotiation because it needs the unanimous approval of more than 30 national and regional parliaments across Europe, some of whom may want to hold referendums.

Policies leading to economic development:

When enables a country to reach this virtues circle of economic growth and rising living standards? The first steps probably depend on political stability, raising basic literacy rates and the encouragement of small business activity. The world price of a mineral or crop that they export needs to be high enough to make profits for local farmers, or to encourage inward investment. Against this background governments has to plan improvements in infrastructure that will future the infant industrialisation - even if it has to borrow to do so. Much can still go wrong. The world prices for major exports may fall. Natural disasters such as flood and drought may hold back progress. Even success will bring the risk of inflation for a booming economy. Workers may demand higher wages that reduce your competitive advantage.

Will I need a visa to travel to the EU?

While there could be limitations on British nationals' ability to live and work in EU countries, it seems unlikely they would want to deter tourists. There are many countries outside the European Economic Area, which includes the 28 EU nations plus Iceland, Lichtenstein and Norway, that British citizens can visit for up to 90 days without needing a visa and is possible that such arrangements could be negotiated with European countries.

Will MPs get a vote on the Brexit deal?

Yes, May has appeared keen to avoid a vote on her negotiating stance, to avoid having to give away her priorities, but she has said there will be a Commons and Lords vote to approve whatever deal the UK and the rest of the EU agree at the end of the two year process. It is worth mentioning that any deal also has t be agreed upon by the European Parliament - with British MEPs getting a chance to vote on it there.

Will the EU still use English?

Yes, there will still be 27 other EU states in the bloc, and other wanting to join in the future, and the common language tends to be English - "much to France's chagrin", she says.

Will I still be able to use my passport?

Yes. It is a British document - there is no such thing as an EU passport, so your passport will stay age same. In theory, the government could, if they wanted change the colour, which is currently standardised for EU countries.

Will e be barred from the Eurovision Song Contest?

all participating countries must be a member of the European Broadcasting Union. The EBU - which is totally independent f the EU, and also includes countries such as Israel that are outside of Europe. Indeed the UK started participating in the Eurovision Song Contest in 1957, 16 years before joining the EEC.

developing country case study 2: Chad

Age structure: 0-14 years: 45%, 15-64 years: 52%, 65+ years: 3%, median age: 17.2 years. Exports: oil, cattle, cotton, gum arabic. Foreign debt: $1,820 million. GDP per capita: $2,500 Imports: machinery and transport equipment, industrial goods, foodstuffs, textiles. Infant mortality rate: 90 per thousand. Labour force by occupation: agriculture: 80%, industry and services: 20% Life expectancy: 49 Literacy rate: 35% Major infectious diseases: bacterial and protozoal diarrhoea, hepatitis A and E, typhoid fever, malaria, schistosomiasis. Below poverty line: 80% of population.

What is the balance of payments?

An account where all of the economic transactions of Uk residents with the rest of the world are recorded. It also shows how these transactions are funded.

Fixed exchange rates:

An exchange rate that is fixed will be set by a central bank at a level which it intends will be maintained. This will involve agreements with other central banks so that an appropriate;riate level can be agreed for each exchange rate in a fixed system. Historically the best example was the gold standard. Each country's currency was exchangeable at the central bank for a fixed weight of gold. In effect this fixed the relative values of currencies. Britain abandoned the gold standard in 1931. More recently in the run-up yo the creation of the euro currency, there was a period when the currencies lining up to convert to the euro sought to maintain their values against each other. This process of "convergence" was similar to a fixed exchange rate system as central banks sought to maintain approximate levels within the European Exchange Rate Mechanism (ERM) and to narrow down the fluctuations between these currencies. There were several realignments along the way, so "fixed" is better thought of as "flexible". When the currencies were finally traded in for euros, this was in a sense a permanent fix of these exchange rates. Fixed so firmly that they vanished and became one.

EU enlargement:

EU enlargement is the process of widening the Eu through the admission of new members. Initially progress was slow with only nine members until 1981. The former dictatorships of Greece, Spain and Portugal then joined as democracies in the 1980s. Austria, Finland and Sweden made it fifteen. In the case of Austria and Finland, the break-up of their powerful communist neighbour the Soviet Union n made it political easier to join what has until then been a Western European club. The waning control and influence of the Soviet Union and the emergence from communism led to a wave of East European countries joining in 2004. The islands of Malta and Cyprus also joined at this time. In 2007 Romania and Bulgaria made 27 nations of what had been 15 just over 3 years easier. Croatia is the first member from the breakup of Yugoslavia to join (2013) and that makes 28 members. The table summarises when countries joined the EU in ascending order of years. Note that the unification of East and West Germany in 1990 did not add an extra members. Around the edges of the current map, below. the Balkan states formed on the break-up of Yugoslavia will shortly be looking for entry (e.g. Croatia may be followed by others such as Serbia). Turkey has long been interested, but is perhaps not as close to membership now as few years ago. North African countries just across the Mediterranean have historic links to many European countries and are possible members. Switzerland retains an independent outlook and has historically sought to remain neutral. Norway voted against entry when its Scandinavian neighbours joined. It has a small population similar to Scotland and its immense oil reserves make it very prosperous outside the EU. Also, its important fishing industry does not have to abide by EU policies.

Political instability:

Economic weaknesses and instability lead to political problems. Corruption and bribery is endemic. Democratic governments struggle to survive and dictators with military support often take over. The little government spending that is available is siphoned of into purchasing armaments. Against this volatile backdrop, foreign investors will think long and hard before making commitments.

'Hot money':

'Hot money' flows are placed in pounds whenever attractive interest rates are available in the UK. 'Hot money' describes liquid funds that can be switched to another currency at short notice. Increase in UK interest rates can lead to an increased demand for pounds, because of the improved returns available in Uk banks. Therefore, increases in UK interest rates relative to the interest rates available elsewhere, will increase demand for pounds and take the value of the pounds upward. Professionals operating in markets make money when they predict the next move by a market. Often when a change in interest rate happens, the market experts have already altered the currency value in the preceding days. The currency makes little further move and the markets are said to have discounted the interest rate change in advance. Expectations impact on the market as well as actual events. Therefore, increases in UK interest relative to the interest rates elsewhere, will increase demand for pounds and take the value of the pound upwards.

emerging economies case study 2: Brazil:

Age structure: 0-14 years: 24%, 15-64 years: 68%, 65+ years: 8%, median age: 31 years. Exports: transport equipment, iron ore, soybeans, footwear, coffee, vehicles. Foreign debt: $476 billion. GDP per capita: $12,100. Imports: machinery, electrical and transport equipment, chemical products, oil, veicle parts, electronics. Infant mortality rate: 19 per thousand. Labour force by occupation: agriculture: 16%, industry: 13%, services: 71% Life expectancy: 73 Literacy rate: 89% Major infectious diseases: None. Below poverty line: 21% of population.

Emerging economies case study 1: India

Age structure: 0-14 years: 29%, 15-64 years: 65%, 65+ years: 6%, median age: 27 years. Exports: petroleum products, precious stones, machinery. Foreign debt: $412 billion. GDP per capita: $4,000 Imports: crude oil, gems, machinery, fertiliser, iron and steel. Infant mortality rate: 43 per thousand. Labour force by occupation: agriculture: 49%, industry: 20%, services: 31%. Life expectancy: 43 Literacy rate: 61% Major infectious diseases: bacterial and protozoal diarrhoea, hepatitis A and E, typhoid fever, malaria, dengue fever, leptospirosis, rabies. Below poverty line: 30% of population.

What is a floating exchange rate?

An exchange rate that floats freely in the foreign exchange market moves according to supply and demand. A distinction is often made between a "clean" float and a "dirty" float.

Has Brexit made house prices fall?

As with most elements of the Uk economy, mot enough self data has been published yet to accurately conclude the Brexit effect on house prices. Industry figures have pointed to "uncertainty" among buyers and sellers that could potentially change the housing market. So far the most significant research has come from the respected Royal Institution of Charted Surveyors, which has published the conclusions of a survey of its member. The primarily records sentiment among surveyors. It found that house prices are expected to fall across the UK in the three months after the referendum vote. However, the dip in prices is only expected to persist over the 12 months from June in London and East Anglia, surveyors predict. House prices were already showing in central London, owing to the fall-out from the changes to stamp duty rules in April. Separate figures from property portal Rightmove suggested the average asking price of houses coming on to the market in England and Wales fell by 0.9%, or £2,647, in July compared with June. It said that agents had reported very few sales had fallen through as a result of the vote. Many potential first-time buyers would welcome a fall, in house prices, with ownership anoint the young falling owning to affordability concerns. Investors in property, or those who have paid off a mortgage and hope to leave homes as inheritance would be unhappy with a long-term reduction in value.

Could MPs block an EU exit?

Could the necessary legislation pass the commons, given that a lot of MPs - all SNP and Lib Dems, nearly all Labour and many Consevativrs - were in favour of staying? The referendum result is not legally binding - Parliament still has to pass the laws that will get Britain out of the 28 nation bloc, starting with the repeal of the 1972 European Communities Act. The withdrawal agreement also has to ratified by Parliament - the House of Lords and/or the Commons could vote against ratification, according to a House of Commons library report. In practice, Conservative MPs who voted to remain in the EU would be whipped to vote with the government. Any who defied the whip would have to face the wrath of voter at the next general election. One scenario that could see the referendum result overturned, is if MPs forced a general election and a party campaigned on a promise to keep Britain in the EU, get elected and then claimed that the election mandate tipped the referendum one. Two-thirds of MPs would have to vote for a general election to be held before the next scheduled one in 2020.

Aid versus trade:

Developing countries are on a subsistence treadmill. Struggling to adequately feed and shelter their people, there is no surplus left to contribute to investment in the future. In 2007 the economy of Chad was estimates to have shrunk by 1.3% - things got worse.

Emerging economies;

Emerging economies are a group of nations that have rapidly growing economies but are still some way behind developed countries. In many ways the experiences of emerging economies are similar to those of those of the UK during its industrial revolution. population movements to the factory and industries of growing urban sprawl mimic a process carried out in centuries gone by in the UK. The citizens on the move from inefficient family farms because far more productive in their mew secondary or tertiary occupations. Often they will decent accommodation in the cities beyond their means in the early years, and rather like the mill workers of nineteenth century Britain, they will live in densely peopled, sub-standard housing. These emerging economies have reached "takeoff". No longer do they go round in circles on the subsistence treadmill. A critical mass has been reached, generating saving, consumer spending and investment. Opportunities for quick-witted entrepreneurs abound. The labour is still cheap by international standards and foreign investment builds factories and pays wages, bringing with it newer technologies and big advances in productivity. Governments now have something to tax - company profits, consumer spending and rising incomes. Judiciously used on infrastructure - roads, railways, harbours, dams, healthcare, education - these taxes when spent are a catalyst to the mix. Governments in emerging economies still tend to borrow heavily, but instead of patching up poverty and fending off crises, now it is used for education, transport and healthcare for an upwardly mobile population.

Before-trade output:

Firstly, before trade, when both nations have to produce both goods for themselves. We assume that both countries have 100 units of factors of production. They have to produce both items so they each will use 50 factors to produce bananas and 50 factors to produce aircraft. Australia is efficient at producing aircraft, but less so at producing bananas. In Australia, one factor of production will produce one aircraft. However, they find producing bananas more difficult and five factors pf production to produce an aircraft. Meantime, in Belize, bananas grow on trees and only one factor of production is needed to produce one ton of bananas. Producing aircraft in Belize would be expensive and difficult so it requires two factors of production to produce an aircraft. The factors of production required for one unit of each output in each country are summarised in efficiency table below. This shows efficiency of each country at producing each product.

Economic output and trade:

GDP is a measure of economic output produced within a country in a given period. Real GDP is a measure of economic output adjusted for price changes. Real GDP in the UK has typical increased every year. Over the period 1980 to 2015, real GDP growth has averaged 2.2% per year, although there have been three downturns in the economy since 1980. After the downturn in the early 1990s, the UK economy experienced 16 consecutive years of growth before output fell in 2008 and 2009. From 2010, output has been growing again - regaining pre-downturn levels in the third quarter of 2013. Real GDP grew by 2.3% between 2014 and 2015, down from 2.9% growth rate between 2013 and 2014. The rate of growth in UK real GDP has exceeded the rate of growth in UK population since 1980, with real UK GDP per head 91% higher in 2015 than in 1980. In 2015, real GDP per head reached £27,505 which was the first time it was above the pre-economic downturn level (£27,183) in 2007.

What is globalisation?

Globalisation is the term coined for the rapid expansion of trade in the last few decades. It refers to the increasingly interconnected world economy. Developments such as the internet and modern communications have been factors. They have assisted the move to internationally recognised brands, and the standardisation of products. It also stems from technological developments such as "containerisation" which reduced the cost of transport. Multi-national firms have moved their production facilities to new locations as they seek ever lower costs of production.

What is a "clean" float?

One where the central bank does not intervene in the market as a buyer or seller of the currency. The pound sterling is a clean floating exchange rate.

Will a Brexit harm product safety?

Probably not, is the answer. It would depend on whether or not the UK decided to get rid of current safety standards. Even if that happened any company wanting to export to the EU would have to comply with its safety rules, and it's hard to imagine a company would want to produce two batches of the same products.

UK productivity levels remain subdued:

Productivity is one of the most important drivers of economic growth. Productivity measures how efficiently inputs, such as labour, are being used in the economy to produce a level of output. When productivity increases, more is produced with the same amount of inputs. This section focuses on labour productivity defined as output per hour worked.

Will leaving the EU mean we don't have to abide by the European Court of Human Rights?

The European Court of Human Rights (ECHR) in Strasbourg is not a European Union institution. It was set up by the Council of Europe, which has 47 members including Russia and Ukraine. So quitting the EU will not exempt the UK from its decisions. However, the UK government is committed to repealing the Human Rights Act which requires UK courts to treat the ECHR as settling legal precedents for the UK, in favour of a British Bill of Rights. As part of that, the UK government is expected to announce measures that will boost the powers of courts in England and Wales to over-rule judgements handed down by the ECHR. However, the EU has its own European Court of Justice, whose decisions are binding on EU institutions and member states. Its rulings have sometimes caused controversy in Britain and supporters of a Brexit have called for immediate legislation to curb its powers.

The European Union - introduction:

The European Union was founded in 1957. Before that in 1951, the six original members formed the European Still and Coal Community, out of which grew the European Union. For the next few decades, it was called the 'common market' in the non-member United Kingdom. The UK joined in 1973. The European Union is a free trade area of 28 countries and over 500 million consumers. For a long period, it was called the European Economic Community (EEC),but in recognition of it developing beyond just an economic union, the middle word was dropped and it became plain EU.

Trends in the pound to dollar exchange rate - a historic perspective

The exchange rate between the Uk pound and the Us dollar is one of the longest established in history.

Why does a currency have to be changed into another currency?

The fundamental reason why is to enable international transactions. However, the currency transactions required for trade to take place are now dwarfed by other market activity. Speculators buy and sell currencies as they see an opportunity to profit. Central banks, such as The Bank of England, intervene in foreign currency markets to influence the market price and enact a government's foreign exchange policy. Multi-national companies attempt to profit (or at least not lose) by their trading activity on the currency markets.

Global specialisation

The gains from international trade are vast. The rapid expansion of world output and the accompanying increase in standards of living stem in part from the growth of international trade. Specialisation by countries is a similar concept to specialisation by workers. The economies of scale associated with all forms of specialisation are a powerful engine of economic growth.

Pink Book - balance of payment figures

The latest figures for the UK's balance of payments can be researched in the UK government's annual 'Pink Book" of balance of payment details. The Pink Book can bed accessed on the internet.

Long terms problems of developing countries:

The problems with the four factors of production lead to longer term problems: debt, political instability and dependence on primary products.

The advantages of trade:

The theories of absolute and comparative advantage highlighting once significant gain from trade. The world will produce more output from the same resource inputs. Other gains from trade can be categorised as gains for consumers or gains for producers.

Who is going to negotiate Britain's exit from the EU?

Theresa May set up a government department, headed by veteran Conservative MP and Leave campaigner David Davis, to take responsibility for Brexit. Former defence secretary, Liam Fox, who also campaigned to leave the EU, was given the new job of international trade secretary and Boris Johnson, who was a leader of the official Leave campaign, is foreign secretary. These men - dubbed the Three Brexiteers - will play a central role in negotiations with the EU and seek out new international, agreements, although it will be Mrs May, as prime minister, who will have final say. The government did not any emergency planning for Brexit ahead of the referendum and Mrs May has rejected calls to say what her negotiating goals are.

Transport costs:

We have ignored transport costs - pretending they don't exist. The gains from international trade are so big that even after resources are used transporting products around the globe, there is still a gain. There are plentiful examples of how transport costs can't be overcome. Fresh flowers flown in from Kenya to the UK and wine from New Zealand are two such examples. Clear evidence that even in the face of transportation costs from halfway round the globe, trade prospers and products can remain competitive.

How much money will the UK save through changes to migrant child benefits and welfare payments?

When it comes to knowing what taxpayers would have got from the benefits curbs negotiated by David Cameron in Brussels. We don't xactly know because the details were never worked out. HM revenue and Customs suggested about 20,000 EU nationals receive child benefit payments in respect of 34,000 children in their country of origin at an estimated cost of about £30 million. But the total saving would have Benn significantly less than that because MR Cameron did not get the blanket ban he wanted. Instead, payments would have been linked to the cost of living in the countries where the children live. David Cameron said ad many as 40% of EU migrant families who come to Britain could lose an average of £6,000 a year of in-work benefits when his "emergency brake" was applied. The DWP estimated between 128,700 and 155,100 people would be affected. But the cuts would have been phased in. New arrivals would not have got tax credits and other in-work benefits straight away but would have gradually gained across to them over a four year period at a rate that had not been decided. The plan will never be implemented now.

What will happen to protected species?

When it comes to what would happen to EU laws covering protected species such as bats in the event of Britain leaving the EU. The answer is that they would remain in place, initially at least. After the Leave vote, the government will probably review all EU-derived laws n the two years leading up to the official exit date to see which ones to keep or scrap. The status of Special Areas of Conservation and Special Protection Areas, which are designated by the EU, would be reviewed to see what alternative protections could be applied. The same process would apply to European Protected Species legislation, which relate to bats and their habitats. The government would want to avid a legislative vacuum caused by the repeal of EU laws before new UK laws are in place - it would also continue to abide by other international agreements covering environmental protection.

Case studies:

the two case studies above give a vivid account of the problem faced by developing countries. Note that, unusually for a developing country, Chad has some oil that it exports. Despite this it remains very underdeveloped.

Jaguar example:

we can conclude that a rise in the value of the pound is bad news for UK exporters such as Jaguar. To continue receiving £40,000 and maintain the profit margin on each car they will need to increase their eurozone price by 20%, exactly the percentage that the pound has risen by against the euro in our example. Meantime makers such as BMW and Mercedes are able to hold their prices, and thus Jaguar are at a competitive disadvantage. It is feasible that companies who have invested heavily in acquiring market share or have a franchised dealer network may choose to take a cut in profits or even make a loss in the short term rather than see market share fall and their hard work undone. They cannot adopt this position for long. Improving productivity can also offset price rises abroad but that would br a gradual process and could not compensate for a rapid increase in an exchange rate. Unless the exchange rate rise is temporary the price competitiveness of UK exports is bound to deteriorate. The volume of Uk exports will therefore decrease. By reversing the process described above, imports into the UK become cheaper. Our example, Jaguar, will be hit again. This time it will be under pressure in its Uk home market because BMW and Mercedes will be able to reduce their price in pounds.