trade

Question 1

definition of specialisation

Answer 1

occurs when individuals, businesses or countries focus resources on the tasks at which they are most skilled

Question 2

what is absolute advantage?

Answer 2

a country has absolute advantage in producing a product when they can produce that product more efficiently than another country.

Question 3

what is comparative advantage?

Answer 3

occurs when a country has a relative advantage in one good over another

Question 4

what are the sources of comparative advantage?

Answer 4

climate and natural resources
labour resources
capital resources and technology `

Question 5

what is a trade deficit?

Answer 5

the amount by which the cost of a countrys import exceeds the value of its exports

Question 6

what is a tariff?

Answer 6

a tax or duty to be paid on a particular class of imports or exports

Question 7

what is the purpose of a tariff?

Answer 7

protect domestic industries by switching consumption away from imports to domestic goods

Question 8

what is the impact of tariffs on the consumer?

Answer 8

would translate to higher prices on everything for less goods, and cause higher insurance rates

Question 9

what is the definition of subsidies?

Answer 9

grants and payments made by the government to domestic producers

Question 10

what is the aim of subsidies?

Answer 10

to enable domestic producers to compete against a more efficient imported supplier

Question 11

what is the impact of tariffs on other producers?

Answer 11

they will have to pay a higher price for the imported goods and therefore production costs will rise

Question 12

what is the impact of tariffs on jobs?

Answer 12

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

Question 13

what are the effects of subsidies on the consumer?

Answer 13

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.

Question 14

how do subsidies cause opportunity cost?

Answer 14

the revenue could have been used to spend on other goods and services, such as education and health

Question 15

how is resource allocation effected due to subsidies?

Answer 15

inefficent producers are being rewarded at the expensie of efficient producers.

Question 16

are tariffs or subsidies more damaging?

Answer 16

they are both inefficient as the both reduce total surplus and economic welfare

Question 17

what are the seven arguments for protection?

Answer 17

• the infant indusries
• diversification
• anti dumping
• national defence
• increased employment
• cheap foreign labour
• favourable balance

Question 18

explain the infant industries argument

Answer 18

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

Question 19

explain the diversification argument

Answer 19

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

Question 20

explain the national defence argument

Answer 20

import barriers are necessary to protect industries that are vital in case of war
what industries are vital?
outdates and trade fosters cooperation

Question 21

explain the increased employment argument

Answer 21

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

Question 22

what were australias FTA’s in 2016?

Answer 22

ten with, NZ, Singapore, Thailand, US, Chile, ASEAN, Malaysia, Korea, Japan and China

Question 23

who were australias top three trade partners?

Answer 23

China, Japan and Korea

Question 24

how does australia gain from the FTA with japan?

Answer 24

• 97% of exports are duty free
• tariffs to be eliminated
• access to cheaper inputs reduces production costs

Question 25

how does australia gain from the FTA with China?

Answer 25

• removal of chinese tariffs

- imporved market access into china for australian firms