Trade Theories
David Ricardo’s trade theory argues that countries should specialise in producing goods where they have the lowest opportunity cost. What is this called?
Comparative Advantage
What percentage of Australia’s GDP is made up of international trade?
Approximately 45-50%
Name one benefit of globalisation for Australia.
Access to larger markets and foreign investment
Calculate the terms of trade given an export price index of 150 and an import price index of 120.
125
This international organisation was established to ensure the stability of the global monetary system
The International Monetary Fund (IMF)
This trade theory, developed by Adam Smith, states that a country should specialise in producing goods where it has an efficiency advantage.
Absolute Advantage
Which region accounts for the majority of Australia’s trade, and why is this region strategically important for Australia’s economic future?
The Asia-Pacific region, due to its growing middle class, proximity, and demand for Australia’s resources and agricultural products
Name one factor that has contributed to globalisation in recent decades.
Advances in technology or reduction in trade barriers
A major global recession reduces demand for Australia’s commodity exports. How does this affect the terms of trade?
The terms of trade worsens as export prices fall
This institution provides financial and technical assistance to developing countries to reduce poverty.
The World Bank
Name one key benefit of specialising according to comparative advantage.
Increased global efficiency and total output
Australia is a net importer of which type of products?
Manufactured goods
What is the 'race to the bottom' phenomenon in globalisation, and why is it a concern for developing countries?
The tendency of multinational corporations to seek the lowest cost environments for production, leading to poor labor conditions and environmental degradation in developing countries
A significant technological advancement in global manufacturing reduces the price of imports for Australia. How does this impact the terms of trade?
The terms of trade improves as import prices fall
What is one of the primary objectives of the World Trade Organization (WTO)?
To facilitate smooth, free, and predictable trade by reducing tariffs and resolving trade disputes
In the context of competitive advantage, how does Michael Porter’s theory differ from the classical theories of absolute and comparative advantage?
Porter’s theory focuses on innovation, firm strategy, and the role of clusters to create sustained competitive advantage, unlike the classical theories which focus on efficiency based on resource endowments
What are Australia’s top three service exports, and how do they contribute to its trade balance?
Education, tourism, and financial services, which contribute significantly to Australia's service sector surplus
How does globalisation contribute to income inequality within countries?
Globalisation disproportionately benefits skilled labor and capital owners, while lower-skilled workers may face wage stagnation or job loss due to outsourcing and automation
As global demand for electronics increases, the price of imported electronics rises. What happens to the import demand curve, and how does this affect Australia's TOT?
The demand curve for imports shifts to the right, worsening TOT
The WTO was formed in 1995 as a successor to which agreement?
The General Agreement on Tariffs and Trade (GATT)
Explain how the theory of economies of scale can affect a country’s competitive advantage in international trade
As firms produce more, they can lower their average costs, giving countries with large domestic markets or successful export strategies a price advantage in global markets
Australia is heavily dependent on the export of commodities. How does this impact the volatility of its terms of trade and overall economic stability?
Dependence on commodities subjects Australia’s terms of trade to fluctuations due to volatile global commodity prices, leading to potential trade surpluses or deficits
Discuss the role of global supply chains in enhancing or inhibiting a country’s comparative advantage.
Global supply chains allow countries to specialise in segments of production where they have a comparative advantage, but they can also increase vulnerability to external shocks (e.g., supply chain disruptions)
Australia's imports of luxury goods are highly elastic. If the price of imports rises slightly, how does this affect Australia's trade balance?
Australia's trade balance may improve as demand for imports falls quickly
How does the IMF assist countries facing balance of payments crises?
By providing short-term loans and financial assistance