Module 5 Flashcards

Question

Trade Diversion

Answer 1

Where trade is diverted without any increase in trade

Answer 2

Where international trade results in gains in living standards through increased trade

Answer 3

ouput per unit of input

Answer 4

Economic development can be measured by the Human Development Index (HDI. HDI is measured one sale of 0-1; the higher the score the more economically developed a nation is. In 2019, Norway has the highest HDI at 0.95 and Higher the lowest at 0.38. Australia was ranked sixth with 0.94. HDI considers: - life expectancy: indicative of the health and nutrition standards in a country, which are critical for a country’s economic and social wellbeing. If health levels are low, the quality of labour resources are also lower and hence less productive. - Education levels: refer to the development of the skills of the workforce, which determine the future development t potential, innovation, and productive capacity of an economy. - GNI per capita: shows citizen access to goods and services, and the extent of potential damaged in an economy. It also offers insight into living standards in an economy, as higher incomes generally support higher living standards.

Answer 5

The principle of comparative advantage starts that even if one country can produce all its goods more efficiently than another country, trade will still benefit both countries if they specialise in the production of the good in which they are comparatively more efficient. Factor endowments- each country has resources it is naturally abundant in, and skills which are (buy comparison) of superior quality to other economies. This theory is referred to as having an advantage over another economy. The two types of advantage include: - absolute advantage: occurs when a country can produce a greater quantity of output using the same fixed resources. For example, country A can produce 3 coats with a given amount of wool and country B can produce 5 coats with the given amount of wool. Here country B has absolute advantage. - comparative advantage: occurs when an economy can produce a good at the lowest opportunity cost – i.e. more efficiently The theory of comparative advantage forms the basis for the reason why free trade is so effective in supporting global economic growth. Producing and exporting goods/services which an economy has comparative advantage in allows the economies of scale and high efficiency levels, meaning the more goods can be produced at a lower price. When economies can specialise a product, they hold comparative advantage in and trade with the rest of the world to acquire products they are inefficient at producing, global output increases overall, boosting global economies growth.

Answer 6

Represents the alternative use of resources. Often referred to. as the 'real" cost, it is represents the cost of satisfying one want over an alternative want. this is also known as economic cost.

Answer 7

is a situation where there are no artifivcal barriers to trade imposed by governments for the purpose of shielding domestic producers from foreign competitors.

Answer 8

Protection refers to government polices that give domestic producers an artificial advantage over foreign competitors such as tariffs on imported goods.

Answer 9

a practice of exporting good to a country at a price lower than the selling prive in their country of origin

Answer 10

taxes on imported goods imposed for the purpose pf protecting Australian indiustries

Answer 11

refers to restrictions on the amounts or values of various kinds of goods that may be imported.

Answer 12

are cash payments from the goverments to businesses. to encourage productionof a good or service and influence the allocarionof resources in an economy. Subsidies are. often granted to businesses to help them compete with goods and services overseas.

Answer 13

occurs when a number of countries join together in a formal preferential trading agreement, to the exclusion of other countries.

Answer 14

is where a countrys imports of a good or service switch from coming from the most efficientproducer to another country because of the impacts of a trade agreements provisions such as tariff levels, import quotas or other rules

Answer 15

it can help "infant industries" to establish themselves, protect local jobs being lost because of cheaper imports, allow a country to remain self-sufficent in important areas such as internationally competitiveeconomy, higher unemployment and lower standard of living

Answer 16

it results in a distortion in resource allocation towards less efficient sectors of the economy and in the longer term can lead to less internationally competitive economy, higher unemployment and a lower standard of living.

Answer 17

A global organisation whose main role is to assist poorer nations with economic development throughloans, development assistanceand technical advice with the goal of reducing extreme poverty to 3 per cent of the global population by 2030 and raising income levels for the lowest 40 percent of income earners.

Answer 18

The two most imporant forums for global ec onomic policy coordination through annual meetings of national leaders. The G7 includes the. major advanced economies, which the G20 includes the large emerging economies that have recently been driving global economic growth. G20 was established after the 2008 GFC to coordinate global response to avert a depression. The G20 account for 85% of the global world economy, 75% of world trade and approximately 66% of the world’s population. G7 has been an unofficial forum for coordinating global macroeconomic policy die to it influence over the fiscal and monetary policies of the world’s largest economies. Lately the significance of the G7 has declines due to the shift in the global balance of power towards emerging economies, particularly China.

Answer 19

PPP is a theory that states that exchange rates should adjust to equalise the price of identical goofd and services in different economies throughout the world.

Answer 20

Is a broad measure of welfare in a nation that include indictaors of health, education and environmental quality as well as material living standards.

Answer 21

HDI is a meaure of economic development devised by the united nations development programme. it takes into account life expectancy at birth, levels of education attainment and material living standards (as measured by gross National income per capital).

Answer 22

experience low living standards, low eduction levels and generally have agruculture-based economies with poor infrastructure and economies and political institutions

Answer 23

in the process of industrialisation and experiencing sustained high levels of economic growth.

Answer 24

include all the natural reosurces provided by nature that are used in the production process. These are often simply refereed to as "land." The reward. (return) to the owners of natural resources is called "rent."

Answer 25

Financial contagion is where news of an economic disaster results in financial traders moving money out of affected or nearby areas/economies. For example, the financial crisis in Greece had many flows on effects for European countries.

Answer 26

skilled workers migrate to countries that offer greater rewards for their talents, resulting in a shortage of skills on certain countries due to the outflow of workers

Answer 27

Over the past 30 years, the Australian government has removed many protective barriers on various industries such as manufacturing. In 1973 there was a 25% unilateral reduction of protectionist policies by the Whitlam Government. This aimed to promote structural change to increase efficiency, productivity, and competition in the Australian government. From 1995-2019, there has been a decrease in the average tariff level in Australia from 9% to 0.8%, while pursuing a range of bilateral and multilateral trade agreements. Therefore, the effectiveness of trade liberation is reflected in the volume of exports which increased by 8.6% and has increased Australia’s GDP by approximately $4 billion, according to the productivity commission in 2015. However, some subsidies remain, the Australian government subsidises farmers to increase international competitiveness as industries such as agriculture can be particularly, especially after natural disasters.

Answer 28

United nations (UN), established in 1945 consisting of 193 members, aims involve peacekeeping, conflict prevention, humanitarian assistance and human rights on a global scale. UN has established a set of Global Goals (Sustainable Development Goals) which aims to reduce global poverty, fight inequality and injustice, and tackle climate change by 2030. These goals have been based on the Millennium Development Goals, such as to eradicate poverty and hunger everywhere by halving the number of people living in extreme poverty and achieving gender equality and empower women and girls. The sustainable development gaols report in 2019 showed that even before the onset of the COVID-19 global pandemic, the world was not on source to achieve the goal of ending poverty by 2030.

Answer 29

Trade agreements are a formal agreement between countries designed to break down barriers to trade between members. More countries have moved toward more regional and bilateral agreements as since they only involve two countries, they are easier to negotiate than multilateral trade agreements.

Answer 30

Australia-United States Free Trade Agreement (AUSFTA Signed in 2004 with the aim of reducing all protection in agriculture and manufacturing. This bilateral free trade agreement eliminated all tariffs in auto mobile industries on both Australian and American exports. Since 2004, merchandise exports to the US increased by 12%, services exports by 22%. The US accounts for 10% of Australia’s total trade, thus a recession in the US will greatly affect Australia.

Answer 31

Transpacific Partnership (TPP) Singed in mid 2016 and includes a large amount of advanced and emerging economies such as the US, Australia, Japan and Vietnam. The agreement aims to eliminate 98% of tariffs for Australian agriculture, potentially increasing agricultural exports by $3.7B and reduce iron ore tariffs. The agreement accounts for 32.6% of total Australian trade, equivalent to 37.5% of Global World Product (GWP). However, the TPP is limited as the United States- the world’s largest economy, withdrew from the agreement in 2017 under present Donald Trump. Furthermore, the TPP lacks a clear implementation timeline and some members have up to 10 years to implement their commitments.

Answer 32

Economic integration refers to the liberation of trade between two or more countries. This means goods and services; labour and other resources can move freely between economies. It occurs when trade barriers are removed.

Answer 33

Trade in goods/services has increased in the last few decades from 38% of global output in 1990 to 50% of global output in 2018 (world bank).

Answer 34

The composition of world trade is made up on manufacturers, commercial services, food and agriculture, fuels and minerals and other goods. In 1995, manufactures accounted for 62% of world trade, as goods such as vehicles, clothing and electronic goods were in high demand. Trade in commercial services are the fastest growing category of trade and make up nearly ¼ of global exports. There has also been an increase in the trade of fuels and minerals and countries expand their cities and require more fuels and minerals to help keep their cities alive. Decrease of 9% in the demand for manufacturers between 1995 and 2018 due to the increase in the demand for services. Decrease in food and agriculture.

Answer 35

Increased output and efficiency: Specialisation allow countries to take advantage of efficiencies generated from economies of scale and increased output. International trade increases the size of a firm’s market, resulting in lower average costs and increased productivity Free trade improves the efficiency of resource allocation. Economic growth: Competition increases productivity, efficiency, and production levels. This increase living standards, real incomes, and rates of economic growth Benefits to consumers: Consumers benefit in the domestic economy as they can now obtain a greater variety of goods and services at the lowest prices. Employment in export industries: Employment will increase in exporting industries and workers will be displaced as import competing industries close unable to compete on a level playing field. - Trade allows countries to obtain goods and services that they could not produce themselves - Allows for specialisation (can lead to economies of scale) - Encourages efficient allocation of resources - International competitiveness - Encourages innovation - Free trade results in higher living standards because of lower prices

Answer 36

Rising structural unemployment in the short term: Structural unemployment affects workers in inefficient industries. Their occupational mobility is low, making it difficult to find employment in growth industries. Increased domestic economic instability from international trade cycles: This means that businesses, employees, and consumers are more vulnerable to downturns in the economies of our trading partners. Dumping: Countries with surplus products may dump them on world markets at below cost. Some efficient industries may find it difficult to compete for long periods under such conditions. Developing or new industries may find it difficult to become established in a competitive environment: With no short-term protection policies by governments, it is difficult to develop economies of scale in the face of competition from large foreign TNCs. Pressure to increase protection during the GFC: During the global financial crisis and recession of 2008-2009, the impact of falling employment meant that protection pressures started to rise in many countries. Free trade can lead to pollution and other environmental problems: Companies fail to include environmental costs in the price of goods in trying to compete with companies operating under weaker controls some countries. - May be more difficult for less advanced economies to establish new business or industries if they are not protected by larger foreign companies

Answer 37

President Donald Trump’s election in 2016 marked a dramatic departure from the United States commitment to trade liberalisation since the second world war. In 2018, president trump began implementing a protectionist agenda, applying tariffs on specific imports from China and the European Union, beginning with steel and aluminium goods. By 2019, a general tariff rate has been imposed on Chinese imports worth $250 Billion per year, promoting retaliatory tariff increases from China and other trading partners. China and US signed a trade deal in January 2020 where US agreed to reduce to 7.5% of its tariffs and china agreed to purchase $200 billion American agriculture and manufacturing products. However, relations again deteriorated later in 2020 when President Trump blamed the Chinese government for the outbreak of COVID-19 pandemic and questioned whether china’s trade commitments were being honoured.

Answer 38

Primary industries have always been the main focus of exports as Australia has a comparative advantage in commodities due to its vast natural resources. Together agricultural and mineral exports account for two-thirds of Australia’s export earnings in addition to service-based exports such as tourism.

Answer 39

Trade allows countries to obtain goods and services that they cannot produce themselves - Free trade allows countries to specialise in the production of the goods and services in which they are most efficient. - Specialisation facilitates economies of scale, lowering average costs of production while increasing efficiency and productivity. - Free trade encourages the efficient allocation of resources. Resources will be used more efficiently because countries are producing the goods in which they have a comparative advantage.

Answer 40

An increase in unemployment as some domestic businesses may find it hard to compete with foreign competitors. - It may be more difficult for less advanced economies to establish new firms and new industries if they are not protected from larger foreign competitors. - Free trade may encourage harmful environmental production methods as producers may win markets by undercutting competitors’ prices - only because they also undercut environmental standards.

Answer 41

Dumping occurs when foreign firms attempt to sell their goods in another country’s market at artificially low prices. Local firms that could normally compete with such foreign producers may be forced out of the market, causing a loss in a country's productive capacity and higher unemployment. The only gain from dumping is that it results in lower prices for consumers in the short term, but this does not last as foreign producers will put up their prices once the local competition is eliminated.

Answer 42

A tariff is a government-imposed tax on imports. It has the effect of raising the price of imported goods, making domestic producers more competitive. Effect on domestic markets: Domestic producers supply a greater quantity of the good -stimulating domestic production and employment. More domestic resources are attracted to the protected industry. This leads to a reallocation of resources towards less efficient producers. Consumers pay a higher price and received fewer goods on those being imported from overseas.

Answer 43

Subsidies are cash payments from the government to businesses to encourage the production of a good or service and influence the allocation of resources in an economy. Subsidies are often granted to businesses to help them compete with foreign competition. Effect on domestic markets: Domestic producers supply a greater quantity of the good - the subsidy stimulates domestic production and employment in the protected industry. Consumers pay a lower price and receive more goods - although indirectly pay for the subsidy through tax. Subsidies impose direct costs on government budgets. This means that governments have fewer resources to allocate to other priorities such as education and healthcare.

Answer 44

An import quota controls the volume of a good that is allowed to be imported over a given period of time. The quota guarantees domestic producers a share of the market. Effect on domestic markets: Domestic producers supply a greater quantity of the good - quota stimulates domestic production and employment in the protected industry. Unlike tariffs, quotas do not directly generate revenue for the government. However, governments can sometimes raise a small amount of revenue from quotas by administering the quota through selling import licences allowing firms to import a limited number of goods. Quotas do not directly generate revenue for the government.

Answer 45

Countries sometimes use a system of tariff quotas. Under this protectionists method, goods imported up to the quota pay the standard tariff rate whereas goods imported above the quota pay a higher rate.

Answer 46

Local content rules specify that goods must contain a minimum percentage of locally made parts. In return, for guaranteeing that a certain percentage of a good will be locally made,. Effect on domestic markets: Prevents foreign completion from exporting as they will have to increase their costs to comply with the local content rule, therefore this creates favourable conditions for domestic producers as they have less foreign competition.

Answer 47

Export incentive gives domestic producers assistance such as grants, loans or technical advice (such as marketing or legal information). They encourage businesses to penetrate global markets or expand their market share. Effect on domestic markets: Export incentives encourage domestic producers to expand their market share through government assistance. This puts them in a better position to compete with foreign exporters.

Answer 48

In the short-term - protectionist policies can allow ‘infant industries’ to expand their scale and reduce their production costs so that they can compete with overseas producers. In the long run - protectionist policies are likely to reduce living standards in an economy, as they tend to distort the allocation of resources away from efficient areas towards areas of less efficient production. This is likely to lead to higher levels of unemployment and lower growth rates.

Answer 49

Global protectionist policies have the overall effect of reducing trade between nations. Protectionism may reduce living standards and global economic growth by shielding inefficient producers.

Answer 50

Trade bloc – a number of countries join together in a formal preferential trading agreement but exclude others eg EU (European Union).

Answer 51

Monetary union – two or more countries share a common currency eg Euro. Monetary unions are formed when groups of countries hare a common currency and monetary policy. This creates an increasingly integrated regional market, boosting. Financial efficiencies. An example of monetary union (and trading bloc) is the eurozone, consisting of all the European union (EU) countries that adopted the Euro as their national currency.

Answer 52

Trade Diversion – this is where a country’s imports switch from coming from the most efficient producer to another country due to the impacts of a trade agreement, such as tariffs, quotas, or other rules.

Answer 53

Increased protectionism may cause retaliation between trading nations, hence reducing trade which is beneficial for the economy. A prime example of this would be presidents trump increased protectionist policies towards china, Mexico, Canada, European union and other trading nations, justifying that protection would save domestic employment, allow the us to renegotiate trade agreements and protect its national defence. However, economists suggest that the calculated effects of this protection have been on consumers and not the foreign competitors like the trump administration has argued as consumers face higher prices as producers that use imported components in the production process have experienced higher prices, therefore meaning the benefits of domestic employment have been offset by this retaliation and higher prices for consumers, decreasing economic growth.

Answer 54

Economic growth, measured in gross domestic product (GDP) occurs when a country experiences sustained increases in its production capacity over time. In Australia, the average growth rate in recent years has been approximately 3%. Economic development is a broader measure which includes health, environmental quality as well as living standards as indicators for a nation’s welfare.

Answer 55

The rewards of globalisation are not always shared equally between and within countries. The distribution of income refers to the comparison of annual incomes, which are direct returns from factors of production (land, labour, capital, and enterprise investment) of citizens. The distribution of wealth refers to the comparison of asset ownership of citizens. While over 1 billion people have moved out of extreme poverty since 1990, there is great inequality of income and wealth across the global economy. Over 50% of those living in extreme poverty live in sub-Saharan Africa, where the vast majority live in rural areas and are poorly educated. 50% of those living in extreme poverty are under 18 years of age. Comparison of wealth and ownership highlights global inequality most; in 2019 the credit Suisse Global wealth Report found that the richest 1% of the world owned 44% of the world’s wealth.

Answer 56

refers to the liberation of trade between two or more countries. This means goods and services; labour and other resources can move freely between economies. It occurs when trade barriers are removed.

Answer 57

refers to the integration between economies of the world. It consists of the sum of economic activity of individual countries, and the interactions between them.