2.2 Trade Flashcards
Unit 2 AOS 2
Trade balance
Net exports (X - M)
Trade balance surplus
Value of exports exceeds value of imports (X > M)
Trade balance deficit
Value of imports exceeds value of exports (X < M)
Free trade agreeements
Designed to promote trade between countries. Facilitates trade and investment between two countries by reducing tariffs, improving market access and providing a framework for economic cooperation.
Trade liberalisation
Removal or reduction of restrictions/barriers on free exchange of goods between nations. More of an ongoing process than a policy.
Economies of scale
Refers to the cost advantages that a business can achieve by increasing its production scale. As volume of production rises, cost per unit output generally decreases.
Tariffs
A tax placed on exports or imports
Exports
A function of international trade whereby goods produced in one country are shipped to another country for future sale or trade in exchange for currency or other goods and services.
Imports
Goods and services produced by foreign sector and purchased by the domestic economy. Requires an exchange of foreign currency or other goods and services and is a withdrawal in the flow of income.
Trade balance
Indicates the value of exports less imports
Trade openness
The extent a country is engaged in international trade. Measured by the ratio of the sum of exports and imports and GDP (ie. X-M/GDP)
International trade
Exchange of goods and services, and financial and capital resources across national borders.
Globalisation
Flow of goods and services, information, ideas, technology, capital and people across national borders. Creates more interconnected and interdependent world.
Balance of Payments
Records and measures financial transactions between Australia and the rest of the world over a period of time. e.g. trade balance, income flows (dividends and interest), financial flows (taking out loans or buying assets), transfers such as foreign aid.
Current account balance
Measures the flow of money across a country’s borders
Net primary income
Value of all receipts of income from Australians holding foreign assets less all payments of income to foreigners who hold Australian assets.
Net secondary incomes
One-way movements of money with nothing expected in return. e.g. overseas pension payment, transfer of money to overseas family.
Balance on current account
Current account comprises of net income (net primary and secondary income) + trade balance (balance on goods/merchandise trade and balance on services)
CaFA
The Capital and Financial Accounts complement the Current Account Balance
Absolute advantage
The ability to produce more units of a good or service then another producer, using the same quantity of resources.
Comparative advantage
The ability to produce a good or service at a lower opportunity cost then another producer (country).
Factor endowments
Abundance in arable land allows comparative advantage in food production, highly skilled labour allows comparative advantage in financial services and technologies
Levels of technology
High degree of specialisation in technology amongst developed countries (Japan, USA, Germany). Comparative advantage in capital intensive goods and high levels of research and development, large shares of scientists and engineers in the workforce.
Importance of International Trade: Economic Growth
Expanding markets cause an increase in the scale of production. Access to a larger consumer base when countries engage in trade.
Importance of International Trade: Resource Allocation and Efficiency
Allows specialisation in producing goods and services with comparative advantage. Efficient resource allocation leads to increases in productivity and overall benefits the global economy.
Importance of International Trade: Innovation and Technology Transfer
Facilitates the flow of ideas, technologies, and innovations between countries. Accelerates advancements and promotes innovation.
Benefits of free trade
More consumer choice, lower prices, ability to acquire needed resources, producers benefit from economies of scale, increased competition, efficient allocation of resources, a source of foreign currency, and diplomatic and cultural benefits.
Costs of free trade
Structural unemployment, discourages the development of infant industries, challenges national security, and can cause global supply chain disruptions.
