Australia and the Rest of the World

Question 1

Trade

Answer 1

• Buying, selling or exchanging goods and services.
• Australia’s economy is significantly influenced by trade, with strong relationships with China, Japan, and the US, supporting growth, employment, and business opportunities in industries like agriculture, mining, and tourism.

Question 2

Investment

Answer 2

• Committing money or capital to an endeavour with the expectation of obtaining additional income or profit.
• Investment is a key driver of the Australian economy, stimulating growth by creating employment, improving productivity, and increasing innovation. It also contributes to infrastructure development, living standards, and business opportunities.

Question 3

Migration

Answer 3

• The movement of people from one location to another in search of employment, a better standard of living, or other economic opportunities.
• Migration boosts population growth, fills labour shortages, and contributes to economic diversity in Australia. However, reduced migration can hinder productivity and growth.

Question 4

Tourism

Answer 4

• The industry surrounding travel for leisure, entertainment, and cultural experiences.
• Tourism, a significant sector in Australia, employs over 600,000 people and contributes $60 billion to the GDP, stimulating growth in regional industries and exporting goods and services to overseas markets.

Question 5

Comparative advantage

Answer 5

The situation where one country has a lower opportunity cost (relative cost) in the production of a good as compared to another country.

Question 6

Absolute advantage

Answer 6

• The ability of one country to produce a good using fewer resources than another country
• A country has an absolute advantage in a good if, with the same quantity of resources, it can produce more of the good than another country

Question 7

Explain how comparative advantage enables specialisation

Answer 7

□ Comparative advantage enables specialisation by allowing countries and individuals to focus on producing the goods and services that they are comparatively better at producing, rather than trying to produce everything.
□ For example, let’s say that two countries, Country A and Country B, both have the ability to produce both wheat and cheese.
□ However, Country A is better at producing wheat, while Country B is better at producing cheese.
□ If they both try to produce both goods equally, they may not be as efficient or successful.
□ But, if Country A focuses on producing wheat and Country B focuses on producing cheese, they can both become experts in their respective industries and produce more goods at a lower cost than if they tried to produce everything.
□ This enables both countries to benefit from trade with each other, as they can exchange their goods and get more of what they need at a lower cost.
□ Specialisation based on comparative advantage leads to more efficiency, productivity, and ultimately higher standards of living for everyone involved.

Question 8

Describe how specialisation and trade enables countries to consume beyond their domestic production capacity

Answer 8

□ Specialisation and trade enable countries to consume beyond their domestic production capacity by allowing them to focus on producing and exporting goods in which they have a comparative advantage while importing goods that are produced more efficiently by other countries. This leads to higher efficiency, lower prices, and increased access to a wider range of goods and services.
□ Specialisation involves producing goods or services in which a country has a comparative advantage. Comparative advantage refers to a situation where a country can produce a good or service at a lower opportunity cost than another country. For example, a country with a large quantity of fertile land and favourable weather may have a comparative advantage in producing agricultural products. By specializing in producing and exporting agricultural products, this country can produce these goods at a lower opportunity cost compared to other countries. Trade enables countries to consume goods that they cannot produce themselves or produce at a higher opportunity cost. When countries trade, they can import goods that are produced more efficiently in other countries. For instance, a country with a limited supply of oil may import oil from a country that has abundant oil reserves. This enables the oil-deficient country to consume oil beyond its domestic production capacity.

Question 9

Benefits of trade

Answer 9

• Specialisation
  ◊ Trade allows countries to focus on producing goods and services that they are relatively better at producing, based on their resources, technology and skills. This leads to greater specialisation, hence better efficiency and greater output.
• Lower Costs
  ◊ Trade enables countries to purchase goods and services that are cheaper than if they were to produce them domestically. This is due to economies of scale, favourable resource endowments, and lower production costs in other countries.
• Greater Choice
  ◊ Trade allows countries to import and export a greater variety of goods and services. Consumers can access a wider range of higher quality and more affordable goods, providing greater benefits to them.

Question 10

Costs of trade

Answer 10

• Job Losses
  ◊ As trade results in greater specialisation and efficiency, certain industries may experience downsizing or have to close down, resulting in job losses for workers in these industries.
• Environmental Impact
  ◊ Unregulated trade can lead to environmental degradation, as countries prioritise economic gains over environmental sustainability.
• Social Justice
  ◊ Trade can be seen as unfair to some countries and regions, as certain groups are disadvantaged while others benefit from trade deals.

Question 11

5 main exports

Answer 11

• Iron ore
• Coal
• LNG
• Alumina
• Crude oil

Question 12

5 main imports

Answer 12

• Passenger vehicles
• Telecommunications
• Intermediate goods
• Optical, technical, medical apparatus
• Electrical machinery and equipment

Question 13

Top 5 two-way trading partners

Answer 13

• China - close in terms of geography
• United States - political reasons
• Japan - economic resources like cars
• Republic of Korea - political reasons
• United Kingdom - strong historical ties

Question 14

Reasons for Australia’s current patterns of trade

Answer 14

□ Australia’s comparative advantage in the production of goods and services plays a significant role in its trade patterns.
□ Abundant reserves of minerals, including iron ore, coal, and copper, contribute to Australia’s exports to countries like China and Japan.
□ A highly developed agricultural sector allows Australia to export beef, wheat, and dairy products to countries like the United States and Japan.
□ Historical ties and strategic alliances also influence Australia’s patterns of trade.
□ Close economic and diplomatic relationship with the United States drives significant trade flows, particularly in services exports such as education and tourism.
□ Australia’s location and geographical proximity to Asia drive trade with countries like China, Japan, and South Korea.
□ Growth of the Asian middle class creates opportunities for Australian exporters in areas such as food and beverages, education, and tourism.

Question 15

Pattern of trade between Australia and China

Answer 15

□ Iron-ore
- China mainly exports manufactured goods
- Their economy has been growing very quickly over the past 2 decades
- To grow an economy, there mut be good infrastructure
- To build good infrastructure, there must be lots of iron-ore - which WA has
- Therefore, because WA exports iron-ore, China needs WA
□ Tourism
- Our trade has been increasing to South Asian countries because they have many developing economies, which needs infrastructure
- In future economies will have more national income, which allows more people to travel
- Australia’s tourism exports grow, and more people will come to Australia for education
□ Geographically closer so transport is cheaper