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Economics Unit 3 Flashcards

1
Q

Why do nations trade?

A

-Unequal distribution of natural resources e.g. Saudi & their oil.
-unequal distribution of capital and technology
-unequal distribution of human skills
-desire for improved standard of living
-profit motive

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2
Q

How do nations trade?

A

Through the use of each nation’s currency

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3
Q

Specialisation

A

When an entity focuses on the production of limited scope of goods to gain a greater degree of efficiency.

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4
Q

Cost of specialisation and trade

A

-Domestic jobs are lost
-Domestic income is lost
-National security
-Nation’s “dumping” of goods trying to drive out domestic competition.
-Other nations don’t treat their workers fairly.

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5
Q

Factor endowment

A

Amount of land, labour, capital, and entrepreneurship a country possess and can exploit for manufacturing. Countries with large endowment of resources tend to be more prosperous than those with small endowment if all other things are equal.

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6
Q

Absolute advantage

A

Ability of nation to produce commodities more efficiently than another nation.

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7
Q

Comparative advantage

A

is an economy’s ability to produce a particular commodity at a lower opportunity cost than its trading partners.

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8
Q

Complexities of International trade

A

-different currencies
-different cost structures
-social differences
-technical differences
-Different national policies
-Multinational corporations

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9
Q

Different cost structure

A

-Labour-capital mix
-Size of domestic market
-transport cost

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10
Q

Composition

A

what is being traded

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11
Q

Direction

A

where the goods are being traded to

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12
Q

Groups affected by International trade

A

Domestic consumers
Domestic sellers
Economic growth & standard of living
Third Parties

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13
Q

Two -way trade

A

International trade in which countries import and export the same or similar goods

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14
Q

Trade Intensity

A

-sum of export and import over GDP
-Measures an economy’s integration with the world economy
- A higher trade intensity means an economy is more susceptible to external shocks in the world

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15
Q

Trade bloc

A

an intergovernmental agreement where barriers to trade are reduced or eliminated among participating states

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16
Q

Trade Liberation

A

removing or reducing trade barriers

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17
Q

Bi-lateral trade agreements

A

Between two countries

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18
Q

Multilateral trade agreements

A

Between multiple countries

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19
Q

World trade organisations

A
  • World Trade Organisation (WTO)
  • European Union (EU)
  • African Union (AU)
  • Asia Pacific Economic Cooperation (APEC)
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20
Q

Deregulation

A

-Easier to invest overseas
-Buying & selling government bonds more effective
-Floated the Australian dollar

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21
Q

Terms of Trade

A

A statistical concept that highlights the relationship between export prices & import prices

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22
Q

formula for terms of trade

A

General price of export price/general price import price

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23
Q

Formula of trade index

A

export price index/import index X 100%

24
Q

opportunity cost formula

A

what is given up/what is gained

25
opportunity cost
the loss of other alternatives when one alternative is chosen
26
competitive advantage
trade advantage obtained through the capacity of a nation's industries to innovate and upgrade.
27
the components of competitive advantage
factor conditions demand conditions related & supporting industries firm strategy, structure & rivalry
28
The law of one price
predicts that the price of the similar products should converge to the one price. used to measure the degree of economic integration
29
What is driving globalisation
Freer trade more efficient transport increased capital mobility new technology standard of living
30
Why do MNC's want to take advantage of Globalisation
-Help minimise labour costs -increase access to natural resources -Help firms gain economies of large-scale production -takes advantage of favourable government policies -increases flexibility in business decision making
31
Exchange rate
The no. of units of a currency received when it is compared for another currency.
32
ChAFTA
Australia-China trade agreement
33
Types of exchange rates
Fixed Floating (dirty) Managed (dirty float)
34
Effects on appreciation
-Lower net exports -domestic g&s become internationally uncompetitive -imports become cheap -imports cheaper- so inputs become cheaper.
35
Effects of depreciation
-greater net exports -domestic g&s internationally competitive -imports become more expensive -more expensive imports means that cost of inputs become more expensive.
36
what causes movements of demand for currency
-overseas economic activity -consumer confidence -export commodity prices -productivity & competitiveness -speculation -interest rate differentials -earning overseas -relative inflation
37
Heckler- Ohlin Model
A country will export goods that are intensive in its relatively abundant factor and will import goods that are intensive in its relatively scarce factor.
38
what is trade protection
Anything implemented by the gov. provide domestic producers with artificial advantage over foriegn competitors.
39
Tariffs
An indirect tax levied on given imports entering the country. Revenue for gov, increases effective price of imports.
40
import quotas
quantity limits imposed by gov. the importation of particular types of goods.
41
cost of protectionism
-inefficient resources allocation -re-distribution of income and wealth -Higher prices -restricted consumer choice -Lower standards of living -international ill-feeling
42
Benefits of free trade
-increased economic growth -Dynamic Business climate -Lower gov. spending -Foreign direct investment -Trade enables for more resources -Expertise/Technology -create jobs & reduce unemployment -Lower prices for consumers -greater access to consumer choice -Trade can promote peace & enrich culture/people
43
The downsides of free trade
-weaken economic stability -prevent development of new infant industries -increased job outsourcing -reduced tax revenue -exploitation and poor working conditions -trade has mixed effects on income distribution -trade can weaken the natural environment
44
Trade Policy
policy of increasing economic activity, creating jobs and obtaining a fair deal for Australia in the International market.
45
FTA
-involve removal of local industry protection -Cutting Tariff rates, removing quotas, signing trade guarantees.
46
Why? (FTA)
-Intense foreign competition --> force cost efficiency -Access to bigger export markets abroad -Allows domestic businesses to grow their export income
47
Aim of FTA's
-better access to desired an important markets -place aus exports in more competitive position -encourage two-way trade, investment, & exchange of ideas &tech -reduce import costs for aus businesses and consumers
48
Trade Diversion
Occurs when production is relocated from a lower-cost country external to the trading bloc to a high-cost country within the trading bloc.
49
Balance of Payments
A summary of a nation's payments to, and receipts from the rest of the world over a year.
50
BOP
Current Account + (capital & financial account) = 0
51
Current Account
Exports & imports -Net trade in goods -Net trade in services -Net primary incomes -Net current transfers
52
Capital & financial account
Investments (FDI)
53
Deficit
When debits are greater the credits
54
Surplus
When credits are greater than debits
55

TGS (3 decks)

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