International trade effects

Question 1

Benefits of purchasing imports on living standards

Answer 1

• Allows for more access to products from varieties of quality and price.
• Smooth functioning businesses and governments, more than half of Australia’s imports are inputs in the production process.
• Access to foreign entertainment.

Question 2

Benefits of selling exports on living standards

Answer 2

-Creates a new market for goods and services that have been produced in Australia but may not have been purchased by Australians. (Mining)

Question 3

Economies of scale and international trade

Answer 3

When a business produces a large number of goods and services it is able to spread the fixed costs over a larger base, decreasing the cost per unit and prices.
Lower prices improve living standards as purchasing power increases.

Question 4

Causes of the CAD

Answer 4

• Australia’s relatively low international competitiveness as there is a high cost structure and low levels of efficiency.
• The continual investment needed to maximise growth potential, and thus use of foreign funds.
• Big growth = big CAD, vice versa

Question 5

ToT and living standards and goals

Answer 5

• Tot increases means more imports can be purchased for any given volume of exports, thus increase in purchasing power.
• economic growth and full employment: Growth is driven by the prices received for exports, thus growth in incomes and consumption and GDP, demand for labor increases.

Question 6

Tot and CA

Answer 6

A higher ToT should boost net export demand, increase the balance on goods and services and improve the CA. If the Tot has increased as a result of higher export prices, exporters will benefit as any given volume of output can be sold for more.

Question 7

Demand for AUD

Answer 7

Australian dollars are demanded in the foreign exchange market whenever a person, business, government or other organisation wants to convert foreign currency into AUD.
Demand occurs when:
-Foreign currency needs to be converted.
-Foreigners pay primary income to Aussies who own overseas assets.
-Birthday cards
-Foreign banks

Question 8

Supply for AUD

Answer 8

Australian dollars are supplied to the foreign exchange market whenever the AUD is needed to purchase a foreign currency.
Supply of AUD will increase when:
-AUD needs to be converted into foreign currency
-Australians pay dividends to foreigners.
-Australians invest overseas.
-Secondary income debts are recorded.

Question 9

Depreciation and appreciation of AUD

Answer 9

Depreciation of AUD = decrease in demand or increase in supply
Appreciation of AUD = increase in demand or derease in supply