Unit 2 AOS 2B International trade Flashcards
international trade
refers the two-way exchange of goods (products) and services across national borders. It involves Australia exporting or selling goods and services to other countries, as well as us buying imports of goods and services from abroad.
international economics
looks at the global forces at work that help to shape domestic economic conditions.
Australia’s three biggest imports are
intermediate and other (raw materials)
consumption goods (such as cars)
services
Australia’s three biggest exports
mineral fuels (oil)
services (transport)
manufactures (equipment)
Australia’s three main trading partners
china 35.3%
Japan 11.8%
United States/Rebublic Korea 5.8%
balance of goods and services
BOGS represents the total value of goods and services exported minus the total value of goods and services imported, measured over a period
the balance of trade
Is a financial account that records a country’s total value of exports of goods and services (i.e. credits) minus the total value of imports of goods and services (i.e. debits), measured over a period. The trade balance may be a surplus, a deficit or an exact balance
explain credits
When weexportgoods (e.g. minerals, wool) and services (e.g. education and tourism), the money we are paid iscoming into Australiaand hence is recorded as acredittransaction by Australia (and of course a debit by some overseas country).
explain debits
When weimportgoods (e.g. oil, cars and electrical appliances) and services (e.g. transportation, business services and tourism), the money for payment is going out andleavingAustralia and is thus recorded as adebittransaction by Australia (and a credit by some overseas country).
a trade surplus
when there are more credits then debits
e.g $10 million and the value of debits was $6 million, then the trade surplus would be $4 million
a trade deficit
when debits are greater than credits
e.g. value of credits was $8 million and the value of debits was $14 million, then the trade deficit would be $6 million
a trade balance of goods and services
when credits and debits are equal
e.g. value of credits was $10 million and the value of debits was $10 million, then there would be an exact trade balance of $0 million
benefits of international trade
-exports allow local firms to fain more economies of large scale production
-exports help grow AD and increase GDP, employment and incomes
-exports expand Australia’s employment opportunities and average incomes
-imports increase our access to resources and help grow our potential GDP
-By increasing competition imports keep inflation
define economies of large scale
Economies of scale are cost advantages realized by companies when production becomes more efficient.
how do exports allow local firms to gain more economies of large-scale production as a benefit of international trade
increase inefficiency and profitability for firms to manufacture goods on a large scale with bigger production runs, rather than having smaller-scale operations.
because most production costs are fixed and dont increase as firms lift its output.
how do exports help to grow Australia’s GDP and AD
forge in spending on our exports of goods
relative scarcity
referred to as the basic economic problem, It arises because the volume (i.e. quantity) and/or efficiency (i.e. quality) of resources available for production is finite or limited, relative to the level of people’s needs and especially their wants — which are virtually unlimited.
opportunity cost
the loss of other alternatives when one alternative is chosen, arises whenever choices or decisions are made between alternative uses of resources.
what does it mean when there is a point inside the production possible frontier.
A point inside the production possibility frontier represents a production inefficiency. Productive inefficiency means when the resources of an economy are underutilized and there can be an improvement.
what does a point outside of a PPF graph represent
a production level that is unattainable given the resources available and the economy productive capacity.
the three economic agents
Consumers or household sector
Businesses or producers that make up the private sector
Government activities and enterprises that make up the public sector.
define the private sector
The private sector isthe segment of a national economy that is owned, controlled, and managed by private individuals or enterprises. The private sector has a goal of making money and employs more workers than the public sector.
define the public sector
The portion of the economy composed of all levels ofgovernmentand government-controlled enterprises. It does not include private companies,voluntaryorganizations, and households.
define consumer behaviour
Consumer Behaviour: Looks at why, how, where and when consumers choose to purchase or not purchase a good or service
traditional economic viewpoint of consumers
They assumed that consumers sought to maximise their pleasure and minimise their pain
consumers are assumed to act rational, define rationality
consumers motivated by self-interest carefully weigh up the expected costs and benefits of each and every decision with the objective of maximizing their utility
what are teh four traditional explanations of consumer behaviour
- consumers act rationally and in their self-interest.
- consumers make informed and smart decisions.
- consumers maximise utility and marginal benefits from consumption.
- consumers have ordered preferences.
explain marginal benefit of consumption
the law of diminishing marginal utility states that each additional (or marginal) unit of a good or services that is consumed generates less utility (satisfaction) than the previous one.
define an incentive
An incentive is an inducement designed to further encourage behaviour that would otherwise not occur to the same extent.
define a disincentive
is a an inducement designed to further discourage behaviour that would otherwise not occur to the same extent.
government disincentives
impose indirect taxes
laws, regulations and fines
government incentives
payment of subsides
offer tax rebates
explain the government incentive payment of consumer subsidies
The government offers subsidies or cash payments to encourage the consumption of products with personal or societal benefits, such as solar panels, energy-efficient items, childcare, or training for the unemployed. These subsidies make goods and services more affordable or even free, motivating consumers to change their behavior and make beneficial purchases.
nominal GDP
GDP that is measured in current prices and not adjusted for inflation
Real GDP
GDP that is measured where it has been adjusted so that impacts of rising prices has been removed.
define economic growth
reders to an increase in the size of a country’s economy over a period of time.
how is GDP measured
the abs collects data from households, companies and government agencies to separately look at production, income and expenditure.
expenditure
Expenditure refers to the amount of money spent by an individual, organization, or government on goods, services, or other obligations
what is a potential cost of economic growth
rapid economic growth is unsustainable and will limit future economic growth as resources are being exploited, decreasing future generations ability to enjoy economic prosperity.
other reasons
-accelerate inflation
-add to structural unemployment
what is an environmental costs of economic growth
economic growth causes deterioration of common access resources needed for survival. intern acceleration climate change
what is a social cost of economic growth
increase economic acuity = decrease of leisure time
what are teh alternative measures to economic growth
- measure of Australia’s progress (MAPS)
- human development index (HDI)
-green GDP
-gross national happiness
explain an alternative measurement of economic growth green GDP
green GDP
calculated by using data for real GDP and subtracting estimated value of costs of environmental damages.
explain an alternative measurement of economic growth human development index
The Human Development Index (HDI) measures a country’s development based on three key dimensions: health (life expectancy), education (mean and expected years of schooling), and standard of living
explain an alternative measurement of economic growth measure of Australia’s progress
The Measure of Australia’s Progress (MAP) assesses Australia’s overall wellbeing by tracking changes in areas like economy, society, environment, and governance.
explain an alternative measurement of economic growth gross national happiness
Gross National Happiness (GNH) measures a country’s progress based on the happiness and wellbeing of its people, focusing on factors like health, education, environment, and cultural values, rather than just economic growth.
factors affecting aggregate supply
-quanity and efficiency of capital, labour and natrual resources available for production.
-cost of production (and whether prism are closed down or opening up)
- climate event
-pandemic lockdowns, wars and disruptions to supply chains
- government policies
productive capacity
is the maximum volume of output of an economy
factors affecting aggregate demand
-level of disposable income
-level of consumer confidence
- level of business confidence
-impact of changes in taxes and government spending
- level of interest rates
-value of the Australian dollar
-overseas economic activity
-population size
AD factor impacting the C component
disposable income
AD factor impacting the I component
interest rates
AD factor impacting the G component
the level of unemployment (governments spend more money to account of welfare programs)
AD factors impacting the X component
overseas economic conditions
AD factors impacting the M component
the value of AUD
leading indicators and example
can help predict where the economy may be heading in the future. for example consumer confidence
lagging indicator and example
show changes in teh economy some time after the event has occurred as it take time to measure.
e.g. GDP
coincidence indicators and example
a measurement that moves closely to the actual change in economic activity e.g. retail sales and share prices
stages of the business cycle
-the peak
-the slowdown
-the trough
-the recovery
sectors of the 5 sector flow model
households
businesses sector
financial sector
government sector
overseas sector
the 5 flows of the business sector
flow 1. flow of natural, capital and labour resources supplied
flow 2. flow of incomes to owners selling resources
flow 3. flow of total spending on Australians products =aggregate demand
flow 4. flow of final production of goods and services.
relative price
is the price of a good or service in terms of another
price mechanism
how forces of demand and supply interact to create a new equilibrium
of relative price affects allocation of resources
when the relative price of one good increases this sense of a price signal to producers that there is profit to me made so they reallocate their resources towards the production of that good.
the law of demand
the inverse relationship between price and quantity demanded where as price decreases quantity demanded increases. whereas as price decreases quantity demanded increases
the law of supply
the positive relationship between price and quantity supplied where, as price increases the quantity of goods produced increases, whereas as price decreases the quantity of goods produced decreases.
normative economics
subjective judgements and evaluation about the economy
positive economics
objective statements refering to facts and statistics about the economy.
micro economics
is the part of economics concerned with single factors and the effects of individual decisions.
operations of a single firms
macro economics
the brach of economics concerned with care-scale or general economic factors
interest rates
pure competition
extreme competition where many markets produce the same goods e.g. vic markets
a price taker with no market power
- ease of entry
-strong competition
-no product differentiation
pure monopoly
a price maker as there is no competition, often less efficient.
-lots of barriers of entry
-no competition
-product differentiation
monopolistic competition
involves quite a few firms such as clothing brands and are price takers
-ease of entry
-strong competition
-somewhat product differentiation
oligopoly
several large firms that control the output of an industry. and is more efficient then pure monopoly
-barriers to entry
-somewhat competition
-product differentiation
a limitation of GDP
it doesn’t measure how evenly goods and services are distributed
role of government
economic stabilisation is to make sure the economy is preforming within their objectives by ensuring employment, inflation and GDP is stable by implementing policies to manipulate consumer behaviours (achieving three goals.)
the labour market
The labour market is an institution where the conditions of demand for labour by firms and the supply for labour by households, interact to determine wages (i.e. the price of labour) and conditions of employment
the law of demand for labour
the D for labour (by businesses) expands as the price or wage falls or, in reverse, contracts as the wage rises.
the law of supply in labour
the S of labour (by households) expands
as the price or wage rises or, in reverse,
S contracts as the wage falls
non price factors that affect the demand for labour
- Changes in the level of consumer demand for goods and services
- The number of businesses wanting to buy labour (hire more labour)
- The efficiency of labour
- The level of business profitability
- Whether there are substitutes for labour available
- Government Policy
non price factors affecting the supply of labour
- Demographics, population structures, and the participation rate of the population in the labour force
- Net immigration rates
- People’s work life balance
- Government policy
- Restrictions on entry into occupations
- Trade unions
stronger labour market conditions occur when..
the demand for labour rises relative to the supply, perhaps because of rising economic activity or the onset of a boom. In this situation, wages increase faster, people work longer hours and labour shortages can appear.
there are weaker labour conditions when…
develop when the demand for labour falls relative to the supply. It is often caused by a slowdown in economic activity or recession. In this situation, wages rise more slowly or fall, and people work fewer hours or become unemployed.
Ideal labour market conditions:
Ideally, labour market conditions should neither be too strong causing labour shortages and perhaps wage-price inflation, nor should they be too weak where unemployment and lower incomes depress living standards.
The Australian government seeks to achieve its goal of full employment. This is defined as the lowest rate of unemployment (perhaps somewhere around 4.0–4.5 per cent of the labour force) that does not cause the inflation rate to increase.
Factors that have influenced growth in the size of the labour market
natural increase in
population growth and
net migration
Cyclical unemployment
Cyclical unemployment is caused by generally weaker aggregate demand factors that slow spending on Australian-made goods and services.
Natural unemployment
(especially structural unemployment) is caused by changing aggregate supply conditions that alter the way goods and services are produced and/or whether firms expand or close down
causes of cyclical unemployment
consumer confidence, business confidence, disposable income, government spending, interest rates and overseas economic activity.
Causes of natural unemployment
- structural unemployment (the most important cause)
- frictional unemployment
- seasonal
unemployment - hardcore unemployment.
strucutral unemployment
- It occurs because of structural change where businesses alter the way they go about producing goods and services and try to cut costs or lift efficiency.
Structural unemployment change can arise from the following causes:
- Use of new technology
- A mismatch of skills among the unemployed
- Some government aggregate supply policies
participation rate
Participation rate: the proportion of those aged 15 and over who are in the labour force
factors that have slowed the wage growth
- Weaker labour productivity growth
- High levels of immigration (growing the supply of labour)
- Higher levels of unemployment (where supply > than demand)
- Declining union membership
factors that have lead to labour
- Australia’s ageing population – skills being lost due to retirement
- The desire for a work-life balance
- The COVID-19 Pandemic
examples of aggregate demand policies
budgetary policies
monetary policies
Budgetary policy
(sometimes also called fiscal policy) relates to the projected changes in the level and composition of federal government revenues (receipts or incoming money) and expenses (outlays or outgoing money) for the year ahead.
- Budget expenses
arise from various types of government outlays on public goods such as defence, health and education, involving both government consumption spending and government investment spending, as well as transfer payments including welfare.
- Budget revenues
come from direct taxes like those on personal income and company profits, and from indirect taxes such as excise or tariffs, along with non-tax revenue.
purpose of budgetary policies
to improve the welfare or living standards of all Australians, or to achieve the most efficient allocation of the nation’s resources. Importantly, it is used to reallocate the nation’s resources to the production of goods and services or activities that maximize our collective material and/or non-material standards of living
sources of government budget revenue
indirect taxes
non-tax revenue
direct taxes
direct taxes
are levies on the incomes revised by individuals and companies, perhaps involving incomes such as those from wages and salaries, profit, interest, dividends and rent
indirect taxes
Indirect taxes are taxes on goods and services, like sales tax or VAT, which are paid by consumers but collected by businesses on behalf of the government.
non tax revenue
comes form sources other then taxation such as profits from the operation of government businesses, fines and interest on loans.
Expansionary Budgetary Policy
policy involves changes in the level of government tax receipts and government spending where this is a reductions in taxes on personal incomes and companies and increases in government outlays and spending on national infrastructure and welfare
job keeper
reductions in taxes and rises in government outlays including the $90 billion for the JobKeeper wage subsidy scheme.
contractionary budgetary policies
- When the economy expands too quickly and experiences a boom, labour shortages can appear, as the unemployment rate falls below 4.0% (e.g may)
non price facotrs affecting the supply of AUD
changes of Australia’s eco growth
changes in Australia’s spending on imports.
Australia’s government spending on imports for defence equipment
non price factors affecting the demand for AUD
overseas eco growth
consumer confidence
changes in the selling prices of Australian goods or services, perhaps due to decrease production costs making goods more attractive
policies taken by governments and businesses to improve international trade
reduction in company tax rates
investment in national infrastructure projects.
