trade Flashcards
definition of specialisation
occurs when individuals, businesses or countries focus resources on the tasks at which they are most skilled
what is absolute advantage?
a country has absolute advantage in producing a product when they can produce that product more efficiently than another country.
what is comparative advantage?
occurs when a country has a relative advantage in one good over another
what are the sources of comparative advantage?
climate and natural resources
labour resources
capital resources and technology `
what is a trade deficit?
the amount by which the cost of a countrys import exceeds the value of its exports
what is a tariff?
a tax or duty to be paid on a particular class of imports or exports
what is the purpose of a tariff?
protect domestic industries by switching consumption away from imports to domestic goods
what is the impact of tariffs on the consumer?
would translate to higher prices on everything for less goods, and cause higher insurance rates
what is the definition of subsidies?
grants and payments made by the government to domestic producers
what is the aim of subsidies?
to enable domestic producers to compete against a more efficient imported supplier
what is the impact of tariffs on other producers?
they will have to pay a higher price for the imported goods and therefore production costs will rise
what is the impact of tariffs on jobs?
low imports and increased production in protected industries may result in lower exports for other producers and may result in a net fall in employment
what are the effects of subsidies on the consumer?
there is no direct adverse effect. they pay the same price and purchase the same amount but they bear an indirect burden though. the cost of the subsidy is paid for from government taxation.
how do subsidies cause opportunity cost?
the revenue could have been used to spend on other goods and services, such as education and health
how is resource allocation effected due to subsidies?
inefficent producers are being rewarded at the expensie of efficient producers.
are tariffs or subsidies more damaging?
they are both inefficient as the both reduce total surplus and economic welfare
what are the seven arguments for protection?
- the infant indusries
- diversification
- anti dumping
- national defence
- increased employment
- cheap foreign labour
- favourable balance
explain the infant industries argument
infant industries need protection to mature and it allows them to become internationally competitive and have CA
however it becomes long term and they lose incentive to innovate
explain the diversification argument
if countries completely apply CA they can only specialise in a few goods so then the economy is vulnerable
however, no country has CA in one or two industries and economies are dynamic and change over time
explain the national defence argument
import barriers are necessary to protect industries that are vital in case of war
what industries are vital?
outdates and trade fosters cooperation
explain the increased employment argument
protection shifts spending to domestic producers, creating jobs
employment in other industries suffer as production costs increase and consumers have less to spend on other industries
what were australias FTA’s in 2016?
ten with, NZ, Singapore, Thailand, US, Chile, ASEAN, Malaysia, Korea, Japan and China
who were australias top three trade partners?
China, Japan and Korea
how does australia gain from the FTA with japan?
- 97% of exports are duty free
- tariffs to be eliminated
- access to cheaper inputs reduces production costs
