significance of trade

Question 1

Australia

Answer 1

• Has a heavy reliance on the international sector of the economy
• Is an exporter of primary commodities such as minerals and agriculture
• Importer of manufactured goods and financial capital
• Trade and foreign investment play a major role in Australia’s economic development

Question 2

how much does trade account for GDP

Answer 2

15-20%

Question 3

what are quotas

Answer 3

Restrictions on quantities of a product being imported

Question 4

what is absolute advantage

Answer 4

A country is said to have absolute advantage in the production of a good over another country if it can produce that good more efficiently than the other country

Question 5

what is comparative advantage

Answer 5

comparative advantage is where a country can produce a good or service at a lower opportunity cost than another country.

Question 6

what are is more important to the economy.

Answer 6

both equally important as both result in increase in produce and consumer surplus which results in net increase in total surplus

Question 7

5 goods and services which Aus has comparative advantage

Answer 7

iron ore, coal, natural gas, beef, wheat.

Question 8

define protection

Answer 8

any action by the government designed to give the domestic producers an artificial advantage over a foreign producer.

Question 9

three types of protection

Answer 9

tariffs, quotas, subsidies.

Question 10

does protection result in net gain or net loss for society

Answer 10

net loss

Question 11

why does a subsidy result in a dead-weight loss

Answer 11

the cost of the subsidy exceeds the increase in producer surplus therefore creating a DWL

Question 12

Disadvantage

Answer 12

wasted resources, high price for imports, reduced exports, consumers pay more

Question 13

arguments for protection

Answer 13

Infant Industry Argument
Diversification
Anti-Dumping:

Question 14

Infant Industry Argument

Answer 14

• Industries need protection until they mature and can take advantage of economies of scale
• Develop competitive edge and comparative advantage
• Support for Australia’s manufacturing industries
• Tends to become long-term rather than short-term
• Accustomed to operating with little competition and lose incentive to innovate
• Needs to progressively be reduced over time, which rarely happens

Question 15

anti dumping

Answer 15

• Overseas producer sells products below the cost of production
• Unfair competition to drive out domestic production – relies on profits from other areas to support it
• Can also offload surplus from their domestic markets
• Difficult to prove if dumping is occurring as the prices may be lower due to comparative advantage
• Temporary protection may deter this behaviour

Question 16

diversicstion

Answer 16

Completely following comparative advantage can lead to narrow band of specialties, resulting in serious changes to the word production market
Australia specialises in agriculture and mining
Protection placed on a range of diversified industries
Slowly reduced over time
Argument weakened by the fact that no countries have comparative advantage in only 1 or 2 industries

Question 17

arguments for trade liberalisation

Answer 17

• strong link between trade and growth
• barriers fall, living standards rise
• higher income and employment opportunities
• producers benefits higher prices to sell and larger market
• consumers benefit as lower prices and can consume more

Question 18

what is the aim of the WTO

Answer 18

• promote and liberalise world trade.

- lower trade Barries and discourage export subsidies

Question 19

explain most favoured nation principle

Answer 19

most favoured nations is basically all nations should be given equal treatment and any changes in treatment to a nation must be changed to the others as well.

Question 20

what is the purpose of a trade bloc

Answer 20

trade block is where a group of countries reduce trade barriers between themselves but impose barriers on counters outside the bloc. suppose to establish preferential trade between specific countries.

Question 21

what is trade creation

Answer 21

trade creating is removing trade barriers to increase the volume of trade