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Economics > ATAR Unit 3 (1) > Flashcards

ATAR Unit 3 (1) Flashcards

1
Q

open economy

A

nation that trades with other nations

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2
Q

three countries that import the most in the world

A

united states of america [#1]

china [#2]

germany [#3]

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3
Q

three countries that export the most in the world

A

china [#1]

united states of america [#2]

germany [#3]

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4
Q

what if australia did not trade ?

A

no imports - less choice for consumers

no exports - decreased employment & economic growth

no competition - higher prices for consumers

shortages & surpluses of products

inefficiency - underemployment of resources

decreased gdp

contracted economy

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5
Q

why is trade important for an economy ?

A

access to imports - increased consumer satisfaction & standard of living

markets for exports - increased employment & economic growth

specialization - increased output

promotes economies of scale

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6
Q

sectors of the circular flow model impacted by trade

A

foreign sector

businesses

households

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7
Q

trade surplus

A

exports are greater than imports; therefore, prima facie, the economy should expand

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8
Q

trade equilibrium

A

exports are equal to imports; therefore, prima facie, the economy should remain constant

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9
Q

trade deficit

A

imports are greater than exports; therefore, prima facie, the economy should contract

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10
Q

why do nations trade ?

A

supplement a nation’s own resources

compensate for differing factor endowments : unequal distribution of natural resources, human skills, capital & technology

desire for an improved standard of living

profit motive

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11
Q

factor endowment

A

supply of factors of production that exists in a country

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12
Q

standard of living

A

measure of lifestyle standards based on material & quantitative indicators [e.g. education, income, health]

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13
Q

internal balance

A

state of the economy in which there is full employment & acceptable rates of inflation

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14
Q

widening gap

A

increasing economic difference between poor nations & economically advanced nations

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15
Q

stakeholders positively impacted by international trade

economy; consumers; workers; businesses; exporters; government

A

economy - economic growth

consumers - more variety & lower prices

workers - job opportunities

businesses - imported capital & incentive to compete

exporters - economies of scale

government - more taxes

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16
Q

stakeholders negatively impacted by international trade

workers & businesses

A

workers & businesses - unemployment if businesses cannot compete with foreign competition

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17
Q

multi-national corporation

A

enterprise operating in several countries but managed from one home country

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18
Q

transfer price

A

price charged for goods between two subsidiaries of one multi-national corporation located in different countries

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19
Q

complexity of international trade

A

different currencies have different purchasing powers & levels of inflation

different cost structures have different methods of production, different domestic market sizes & different transport costs

different social & technical aspects have different languages, customs, habits, tastes & requirements

different government policies have different motives for personal profit & welfare leading to inequality

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20
Q

sustainable economic growth

A

rate of growth that increases production, income & consumption; thus, current & future standards of living

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21
Q

full employment

A

socially acceptable rate of unemployment; everyone who wants a job has a job

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22
Q

price stability

A

little variation in prices & minimal inflation

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23
Q

sustainable development

A

rate of growth that cares for the environment & future generations

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24
Q

internal stability

A

state of the economy where there is full employment & price stability

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25
Q

external stability

A

state of the economy where financial obligations with the rest of the world are met through government policy measures

26
Q

equitable distribution of income & wealth

A

fair distribution & allocation of income, tax & welfare

27
Q

composition of trade

A

what we trade

28
Q

direction of trade

A

where & with whom we trade

29
Q

primary products

A

products w. minimal to no processing [e.g. agriculture]

30
Q

simply transformed manufactures

A

basic intermediate manufactured products used as inputs for other goods [e.g. chemicals]

minimal price mark-up

31
Q

elaborately transformed manufactures

A

vast range of finished products [e.g. machinery]

high price mark-up & more jobs

32
Q

australia’s imports & exports

A

imports stm’s & etm’s [e.g. telecommunications equipment & vehicles]

exports primary products [e.g. iron ore & coal]

33
Q

why have resource exports increased ?

A

resource production & resource price has increased significantly [supply]

china has been a key importer / buyer of australian resources [demand]

34
Q

why have manufacturing exports not increased as much as resource exports ?

A

small population - cannot achieve economies of scale

isolation - high transport costs

wages - high production costs

35
Q

australia’s direction of trade

A

great britain used to be australia’s main trading partner

australia’s trade is becoming increasingly asian-oriented

36
Q

direction of australia’s free trade agreements

A

australia trades where profit lies

australia’s free trade agreements are becoming increasingly asian-orientated [e.g. ChAFTA, ASEAN]

37
Q

most important driver of trade

A

political ties - a stability perspective [morals & trust]

geographical proximity - a cost perspective [transport distance]

38
Q

percentage change expression

A

(new - old) / (old x 100)

39
Q

opportunity cost expression

A

(give up) / (gain)

40
Q

absolute advantage

A

ability of a nation to produce commodities more efficiently [lower resource cost] than another nation

41
Q

comparative advantage

A

ability of a nation to produce commodities at a lower opportunity cost of production than another nation

42
Q

adam smith’s theory

A

absolute advantage is producing more of a commodity than another producer using the same quantity of resources [i.e. lower direct resource cost]

only nations with absolute advantage in separate commodities should specialize & trade

43
Q

david ricardo’s theory

A

comparative advantage is producing at a lower opportunity cost than another producer

nations may still benefit through specialization & trade even if a producer has absolute advantage in both commodities

nations should specialize in & trade the commodity where they produce at the lowest opportunity cost

44
Q

assumptions of absolute & comparative advantage

A

two countries producing two commodities

fixed technology

mobile resources between two commodities

no transport costs

45
Q

heckscher–ohlin theory of trade

A

composition & direction of trade is based on factor endowments

nations export commodities they have large factor endowments for

nations import commodities they have small factor endowments for

46
Q

competitive advantage

A

ability of a nation’s industries to innovate & upgrade

47
Q

michael porter’s theory

A

a nation’s prosperity relies on its industries’ ability to be innovative & upgrade to adopt technology

48
Q

diamond of national advantage

A

factor conditions - advantage in factors of production [e.g. infrastructure investment / specialized workforce training]

demand conditions - developed domestic market [clear view of consumer demand to help anticipate international market needs]

related & supporting industries - efficient & internationally competitive supplier industries

firm strategy, structure & rivalry - company creation, management & domestic rivalry need to be disciplined, flexible & conducive to innovation

49
Q

globalization

A

growing integration of national economies to form a single interdependent global economy

50
Q

globalization positives

A

economies of scale [decreased costs / prices]

freedom of trade [more choice]

improved communication [increased welfare]

51
Q

globalization negatives

A

widening gap between the rich & the poor [equity]

local businesses cannot compete [due to MNC’s EoS]

environmental harm

52
Q

how to measure globalization ?

A

trade intensity - ratio of trade to GDP

law of one price - commodities converge to one price [e.g. gold]

53
Q

trade intensity expression

A

(new - old) / (old x 100)

54
Q

multi-national corporation characteristics

A

25% of revenue generated from operations outside parent country

headquarters located in parent country

offices, branches, workers, etc… in host countries

55
Q

why do multi-national corporations exist ?

A

90% of global demand is not met by local supply

lower prices from economies of scale [supply chains]

56
Q

what is important for multi-national corporations to be successful ?

A

location of natural factor endowments - source of resources to produce [e.g. low-cost labour]

digital & other innovation - internet reduces costs by cutting out the middle-man [retailers]

infrastructure integration including logistics - efficient process of getting product from source to consumer

government incentives - financial [grants & loans], fiscal [lower tax rates], other incentives [free trade zones]

57
Q

what is important for multi-national corporations to be successful ? [link to trade theory]

A

location of natural factor endowments - heckscher–ohlin theory of trade [factor endowments]; ricardo’s theory [lower opportunity cost]; smith’s theory [lower direct resource cost]

digital & other innovation - porter’s theory [improved factor conditions / related & supporting industries]

infrastructure integration including logistics - porter’s theory [improved factor conditions / related & supporting industries]

government incentives - porter’s theory [improved demand conditions / firm strategy, structure & rivalry]; ricardo’s theory [lower opportunity cost]; smith’s theory [lower direct resource cost]

58
Q

world trade organization [who, members, role, goal]

A

only global organization dealing w. the rules of trade between nations [est. Geneva, 1995]

164 members states [including australia]

promote free trade; police trade agreements; mediate trade disputes; impose trade sanctions

ensure that trade flows smoothly, predictably & freely

59
Q

world trade organization [arguments for]

A

joseph stiglitz:

represents a rules-based global economic system

importance of rules to govern relations

multi-lateral system where everyone works together

importance of shared prosperity

60
Q

world trade organization [arguments against]

A

donald trump:

america is disadvantaged in trade deals [e.g. NAFTA]

china grew w. the backing of the WTO

america loses all its cases w. the WTO

unfair to america

61
Q

international monetary fund [who, members, role, goal]

A

organization working to foster global monetary cooperation & secure financial stability

189 countries [including australia]

economic surveillance & reporting; provide loans; stabilize currencies; restore conditions for strong economic growth; work w. governments to modernize economic policies & institutions to improve economic growth & create jobs

ensure the stability of the system of exchange rates & international payments that enable countries to transact w. each other

62
Q

the world bank [who, members, role, goal]

A

organization comprised of five institutions

189 member countries [including australia]

provide technical & financial assistance to developing countries; end extreme poverty; increase the income of the poor

end extreme poverty & promote shared prosperity in a sustainable way

Economics (4 decks)

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