Part One: Australia's Place in the Global Economy

Question 1

What is Free Trade

Answer 1

Situation where governments impose no artificial barriers to trade that restrict the free exchange of goods and services between countries with the aim of shielding domestic producers from foreign competitors.

Question 2

Advantages of Free Trade (6)

Answer 2

1. Obtain goods and services that they don’t produce themselves or in sufficient quantities.
2. specialization of goods and services
3. Efficient allocation of resources
4. Economies of scale
5. Technical and dynamic efficiency
6. Higher living standards

Question 3

Disadvantages of Free Trade (3)

Answer 3

1. Short term Structural unemployment
2. Infant industries
3. Dumping - Production surpluses may be dumped at unrealistically low prices on the domestic market which may hurt efficient domestic industries
4. Environmental damage

Question 4

What is Protection

Answer 4

Government policies that give domestic producers an artificial advantage over foreign competitors such as tariffs, quotas, subsidies

Question 5

Reasons for Protection (4)

Answer 5

1. Infant industries
2. Prevention of dumping
3. Protection of domestic employment
4. Defence and self-sufficiency

Question 6

What are Tariffs

Answer 6

Taxes on imported goods which has the effect of raising the prices of the imported goods, making the domestic producer more competitive.

Question 7

What are Quotas

Answer 7

Restrictions on the amounts of values of various kinds of goods that may be imported

Question 8

What are Subsidies

Answer 8

Cash payments from the Government to businesses to encourage production of a good or service. It gives them the power to reduce their selling price and thus compete better

Question 9

What is Absolute Advantage

Answer 9

An economy has an absolute advantage if it can produce a greater quantity of a product with a given level of resources than another economy is able to

Question 10

What is Comparative Advantage

Answer 10

Countries should specialise in the production of goods that they have the lowest Opportunity cost at producing

Question 11

What is Local Content Rules

Answer 11

Goods must contain a percentage of locally produced parts

Question 12

What are the economic effects of a tariff

Answer 12

• Stimulates domestic production and employment
• Reallocation of resources towards less efficient producers
• Consumers pay higher prices and receive fewer goods
• Revenue for the government
• Retaliation effect

Question 13

How do you calculate absolute and comparative advantage?

Answer 13

Opportunity cost - make good = 1, lower number out come means lower opportunity cost and ‘advantage’

Question 14

What are the effects of protection on the domestic economy

Answer 14

• Resources are misallocated
• Inflation
• Economic growth is retarded
• Export earnings are lower

Question 15

What are export incentives

Answer 15

Provide domestic producers assistance such as grants, loans or technical advice to encourage local business to export their products or services

Question 16

What are the effects of protection on the global economy

Answer 16

Agricultural subsidies reduce Australia’s net farm export income by depressing world agricultural prices and by denying market access to Australian farm exports. (EU’s Common Agricultural Policy: CAP)