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Economics > ATAR Unit 3 (1) > Flashcards

ATAR Unit 3 (1) Flashcards

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1
Q

open economy

A

nation that trades with other nations

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2
Q

three countries that import the most in the world

A

united states of america [#1]

china [#2]

germany [#3]

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3
Q

three countries that export the most in the world

A

china [#1]

united states of america [#2]

germany [#3]

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4
Q

what if australia did not trade ?

A

no imports - less choice for consumers

no exports - decreased employment & economic growth

no competition - higher prices for consumers

shortages & surpluses of products

inefficiency - underemployment of resources

decreased gdp

contracted economy

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5
Q

why is trade important for an economy ?

A

access to imports - increased consumer satisfaction & standard of living

markets for exports - increased employment & economic growth

specialization - increased output

promotes economies of scale

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6
Q

sectors of the circular flow model impacted by trade

A

foreign sector

businesses

households

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7
Q

trade surplus

A

exports are greater than imports; therefore, prima facie, the economy should expand

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8
Q

trade equilibrium

A

exports are equal to imports; therefore, prima facie, the economy should remain constant

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9
Q

trade deficit

A

imports are greater than exports; therefore, prima facie, the economy should contract

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10
Q

why do nations trade ?

A

supplement a nation’s own resources

compensate for differing factor endowments : unequal distribution of natural resources, human skills, capital & technology

desire for an improved standard of living

profit motive

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11
Q

factor endowment

A

supply of factors of production that exists in a country

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12
Q

standard of living

A

measure of lifestyle standards based on material & quantitative indicators [e.g. education, income, health]

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13
Q

internal balance

A

state of the economy in which there is full employment & acceptable rates of inflation

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14
Q

widening gap

A

increasing economic difference between poor nations & economically advanced nations

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15
Q

stakeholders positively impacted by international trade

economy; consumers; workers; businesses; exporters; government

A

economy - economic growth

consumers - more variety & lower prices

workers - job opportunities

businesses - imported capital & incentive to compete

exporters - economies of scale

government - more taxes

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16
Q

stakeholders negatively impacted by international trade

workers & businesses

A

workers & businesses - unemployment if businesses cannot compete with foreign competition

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17
Q

multi-national corporation

A

enterprise operating in several countries but managed from one home country

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18
Q

transfer price

A

price charged for goods between two subsidiaries of one multi-national corporation located in different countries

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19
Q

complexity of international trade

A

different currencies have different purchasing powers & levels of inflation

different cost structures have different methods of production, different domestic market sizes & different transport costs

different social & technical aspects have different languages, customs, habits, tastes & requirements

different government policies have different motives for personal profit & welfare leading to inequality

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20
Q

sustainable economic growth

A

rate of growth that increases production, income & consumption; thus, current & future standards of living

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21
Q

full employment

A

socially acceptable rate of unemployment; everyone who wants a job has a job

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22
Q

price stability

A

little variation in prices & minimal inflation

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23
Q

sustainable development

A

rate of growth that cares for the environment & future generations

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24
Q

internal stability

A

state of the economy where there is full employment & price stability

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25
external stability
state of the economy where financial obligations with the rest of the world are met through government policy measures
26
equitable distribution of income & wealth
fair distribution & allocation of income, tax & welfare
27
composition of trade
what we trade
28
direction of trade
where & with whom we trade
29
primary products
products w. minimal to no processing [e.g. agriculture]
30
simply transformed manufactures
basic intermediate manufactured products used as inputs for other goods [e.g. chemicals] minimal price mark-up
31
elaborately transformed manufactures
vast range of finished products [e.g. machinery] high price mark-up & more jobs
32
australia's imports & exports
imports stm's & etm's [e.g. telecommunications equipment & vehicles] exports primary products [e.g. iron ore & coal]
33
why have resource exports increased ?
resource production & resource price has increased significantly [supply] china has been a key importer / buyer of australian resources [demand]
34
why have manufacturing exports not increased as much as resource exports ?
small population - cannot achieve economies of scale isolation - high transport costs wages - high production costs
35
australia's direction of trade
great britain used to be australia's main trading partner australia's trade is becoming increasingly asian-oriented
36
direction of australia's free trade agreements
australia trades where profit lies australia's free trade agreements are becoming increasingly asian-orientated [e.g. ChAFTA, ASEAN]
37
most important driver of trade
political ties - a stability perspective [morals & trust] geographical proximity - a cost perspective [transport distance]
38
percentage change expression
(new - old) / (old x 100)
39
opportunity cost expression
(give up) / (gain)
40
absolute advantage
ability of a nation to produce commodities more efficiently [lower resource cost] than another nation
41
comparative advantage
ability of a nation to produce commodities at a lower opportunity cost of production than another nation
42
adam smith's theory
absolute advantage is producing more of a commodity than another producer using the same quantity of resources [i.e. lower direct resource cost] only nations with absolute advantage in separate commodities should specialize & trade
43
david ricardo's theory
comparative advantage is producing at a lower opportunity cost than another producer nations may still benefit through specialization & trade even if a producer has absolute advantage in both commodities nations should specialize in & trade the commodity where they produce at the lowest opportunity cost
44
assumptions of absolute & comparative advantage
two countries producing two commodities fixed technology mobile resources between two commodities no transport costs
45
heckscher–ohlin theory of trade
composition & direction of trade is based on factor endowments nations export commodities they have large factor endowments for nations import commodities they have small factor endowments for
46
competitive advantage
ability of a nation's industries to innovate & upgrade
47
michael porter's theory
a nation's prosperity relies on its industries' ability to be innovative & upgrade to adopt technology
48
diamond of national advantage
factor conditions - advantage in factors of production [e.g. infrastructure investment / specialized workforce training] demand conditions - developed domestic market [clear view of consumer demand to help anticipate international market needs] related & supporting industries - efficient & internationally competitive supplier industries firm strategy, structure & rivalry - company creation, management & domestic rivalry need to be disciplined, flexible & conducive to innovation
49
globalization
growing integration of national economies to form a single interdependent global economy
50
globalization positives
economies of scale [decreased costs / prices] freedom of trade [more choice] improved communication [increased welfare]
51
globalization negatives
widening gap between the rich & the poor [equity] local businesses cannot compete [due to MNC's EoS] environmental harm
52
how to measure globalization ?
trade intensity - ratio of trade to GDP law of one price - commodities converge to one price [e.g. gold]
53
trade intensity expression
(new - old) / (old x 100)
54
multi-national corporation characteristics
25% of revenue generated from operations outside parent country headquarters located in parent country offices, branches, workers, etc... in host countries
55
why do multi-national corporations exist ?
90% of global demand is not met by local supply lower prices from economies of scale [supply chains]
56
what is important for multi-national corporations to be successful ?
location of natural factor endowments - source of resources to produce [e.g. low-cost labour] digital & other innovation - internet reduces costs by cutting out the middle-man [retailers] infrastructure integration including logistics - efficient process of getting product from source to consumer government incentives - financial [grants & loans], fiscal [lower tax rates], other incentives [free trade zones]
57
what is important for multi-national corporations to be successful ? [link to trade theory]
location of natural factor endowments - heckscher–ohlin theory of trade [factor endowments]; ricardo's theory [lower opportunity cost]; smith's theory [lower direct resource cost] digital & other innovation - porter's theory [improved factor conditions / related & supporting industries] infrastructure integration including logistics - porter's theory [improved factor conditions / related & supporting industries] government incentives - porter's theory [improved demand conditions / firm strategy, structure & rivalry]; ricardo's theory [lower opportunity cost]; smith's theory [lower direct resource cost]
58
world trade organization [who, members, role, goal]
only global organization dealing w. the rules of trade between nations [est. Geneva, 1995] 164 members states [including australia] promote free trade; police trade agreements; mediate trade disputes; impose trade sanctions ensure that trade flows smoothly, predictably & freely
59
world trade organization [arguments for]
joseph stiglitz: represents a rules-based global economic system importance of rules to govern relations multi-lateral system where everyone works together importance of shared prosperity
60
world trade organization [arguments against]
donald trump: america is disadvantaged in trade deals [e.g. NAFTA] china grew w. the backing of the WTO america loses all its cases w. the WTO unfair to america
61
international monetary fund [who, members, role, goal]
organization working to foster global monetary cooperation & secure financial stability 189 countries [including australia] economic surveillance & reporting; provide loans; stabilize currencies; restore conditions for strong economic growth; work w. governments to modernize economic policies & institutions to improve economic growth & create jobs ensure the stability of the system of exchange rates & international payments that enable countries to transact w. each other
62
the world bank [who, members, role, goal]
organization comprised of five institutions 189 member countries [including australia] provide technical & financial assistance to developing countries; end extreme poverty; increase the income of the poor end extreme poverty & promote shared prosperity in a sustainable way

Economics (4 decks)

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