Trade and Protection - Aust place in global economy

Question 3

What are the main reasons countries engage in trade?

Answer 3

Factors endowments, natural resources, geography, climate, and specialization

Question 4

What does the theory of comparative advantage state?

Answer 4

Countries should specialize in goods and services which they can produce most efficiently

Question 5

Define absolute advantage.

Answer 5

Ability to produce goods and services more efficiently than competitors

Question 6

Define comparative advantage.

Answer 6

Ability to produce goods and services at a lower opportunity cost than trading partners

Question 7

What is the significance of opportunity cost in trade?

Answer 7

High opportunity cost indicates a disadvantage, while low opportunity cost indicates an advantage

Question 8

What is protectionism?

Answer 8

Protecting domestic industries over foreign competitors

Question 9

What is free trade?

Answer 9

A situation where there are no artificial barriers to trade imposed by governments

Question 10

List advantages of free trade.

Answer 10

• Access to goods and services not produced domestically
• Specialization in efficient products
• Better resource allocation
• Economies of scale
• Lower average production costs
• Increased consumer choice

Question 11

List disadvantages of free trade.

Answer 11

• Domestic unemployment due to competition
• Less advanced economies struggle to establish new industries
• Environmental irresponsibility
• Potential for profit prioritization over sustainability

Question 12

What are tariffs?

Answer 12

A tax on imported goods designed to reduce imports and protect domestic producers

Question 13

How do tariffs affect domestic markets?

Answer 13

Domestic markets earn more money as their products become cheaper compared to imports

Question 14

What is the formula for tariff revenue?

Answer 14

Tariff revenue = tariff price x quantity of imports

Question 15

What are quotas in trade?

Answer 15

Quantitative restrictions on the amount of goods that may be imported

Question 16

List economic effects of quotas.

Answer 16

• Stimulates domestic production
• Restricts foreign competition
• Higher prices for consumers
• Does not generate direct government revenue

Question 17

What is a subsidy?

Answer 17

Cash payments from the government to businesses to encourage production

Question 18

What are local content rules?

Answer 18

Requirements that goods must contain a minimum percentage of locally made parts

Question 19

What is the argument for protecting infant industries?

Answer 19

Providing protection for small-scale industries that cannot compete with larger foreign firms

Question 20

What is the impact of protection on inflation?

Answer 20

Inflation results from the distortion of prices due to tariffs on imports

Question 21

What are the macroeconomic effects of protectionism?

Answer 21

Negative impact on industry performance and potential inefficiency in resource allocation

Question 22

What is rent-seeking behavior?

Answer 22

Allocating resources towards unproductive industries for lobbying instead of efficiency

Question 23

What are the effects of global protection on Australian trade?

Answer 23

Reduces export income and makes it harder for Australian industries to compete

Question 24

What are bilateral free trade agreements?

Answer 24

Trade agreements between two nations, such as AUSFTA and KAFTA

Question 25

What is the significance of CHAFTA for Australia?

Answer 25

Increases trade access to China and boosts Australian agricultural exports

Question 26

What are multilateral trade agreements?

Answer 26

Trade agreements involving multiple nations, such as ASEAN-AUS-NZ and RCEP

Question 27

Fill in the blank: Countries can produce more goods collectively by trading their respective _______.

Answer 27

[advantages]