Free Trade and Protection

Question 1

why is free trade important

Answer 1

higher rates of income growth per capita

Question 2

how have exports as a percentage of GDP increased 1990 to 2020

Answer 2

15% of GDP = exports

24% of GDP = exports

Question 3

how can countries gain from specialisation

Answer 3

the income they earn from surplus production is used to purchase g/s that require but do not produce themselves

Question 4

how is international specialisation made possibl

Answer 4

Uneven distribution and quality of resources between countries

Question 5

what is specialisation

Answer 5

producing only one product, the one you are most efficient at

Question 6

what is absolute advantage

Answer 6

A country is said to have an absolute advantage in the production of a good or service over another country if it can produce a greater quantity of that good with the same quantity of inputs or the same quantity of output with fewer inputs

Question 7

what is op cost

Answer 7

the ratio of producing one unit of good to producing one unit of the other

Question 8

what is comparative advantage

Answer 8

if it can produce a good or service at a lower op cost than another country

Question 9

when does a country have CA in producing a good (3)

Answer 9

AA in production of both goods = CA where AA is greatest
No AA = CA were abosolute disadvantage is smallest
AA in both = CA where lowest op cost

Question 10

what are the sources of comparative adv (what determines it)

Answer 10

determined by quantity and quality of resources (natural, labour capital)

Question 11

DRAW GAIN FROM EXPORTS GRAPH WITH SURPLUS STUFF

when does a country gain from exports

Answer 11

If domestic price of producing a good < world price = country is relatively more efficient, it has a lower opportunity cost or a comparative advantage

Question 12

DRAW GAIN FROM IMPORTS GRAPH WITH SURPLUS STUFF

when does a country gain from imports

Answer 12

Domestic price > world price = country doesn’t have comparative advantage of producing a goods, the world is more cost efficient`

Question 13

what is ‘protection’

Answer 13

Any action by government designed to give the domestic producer an artificial advantage over a foreign producer by increasing domestic production and decreases import consumption: tariffs, subsidies and quotas (quantitative restrictions on imports)

Question 14

what 2 groups lose from protection (there is net welfare loss)

Answer 14

1. unprotected industries - no resources so have to import expensive
2. consumers pay more for domestic and imported goods

Question 15

what is a tariff

DRAW TARIFF DIAGRAM

Answer 15

a tax placed on an import designed to increase the price of foreign goods and services so domestic goods receive price benefit

Question 16

what is a subsidy

DRAW SUBSIDY DIAG

Answer 16

grants or payments made by the government to domestic producers which directly lowers a producer’s costs of production

Question 17

what are the 7 agruments for protection (briefly explain)

Answer 17

1. antidumping - exports good at lower price to get rid of stock
2. infant industry - new businesses need protection
3. diversification - not placing all eggs into one basket
4. national security - protect indsutries vital to econ incase of war
5. increased employment - in protected industry (more domestic demand)
6. cheap foreign labour - fast fashion
7. favourable BOP - trade deficit could be eliminated

Question 18

what is the most favourable nation principle

Answer 18

if one country improves benefits for one trading partner it must do the same for all WTO members

Question 19

what is the national treatment principle

Answer 19

imported goods and services should be treated the same as domestic - no descrimination

Question 20

what is a free trade agreemnent and what is a bilateral agreement

Answer 20

treaty between 2 or more economies that reduce of eliminate certain barriers to trade

Question 21

what is a trade bloc

Answer 21

group of countries that agree to reduce trade barriers between themselves but impose those barriers on oustide countries (EU, NAFTA)

Question 22

what is trade diversion

Answer 22

when trade is diverted from a low cost producer outside the trade agreement to a higher cost producer within the group

Question 23

how many FTAs does aus have

Answer 23

14 with 20 countries