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International Trade - Coggle Diagram
International Trade
Question 1: Why do nations trade?
Globalization
The integration different countries and economies, as well as the increased impact of international influences on life and economic activity
Theory of Absolute Advantage
When a nation can produce commodities more efficiently than another nation
Theory of Comparative Advantage
Economies should specialize in the production of goods and services that they can produce at a lower opportunity cost.
Question 3: Why is trade complex?
Government Intervention
Free Trade
Is a situation where there are no artificial barriers to trade imposed by governments that restrict that free exchange good and services between economies
Tariffs
: taxes on imported goods imposed for the purpose of protecting Australian industries.
Quotas
A limit on the quantity of goods imported
Subsidies
A payment to local producers
Other
Cost structure
the overall framework within a country that contributes to the final price of a commodity produced by that country.
dumping
the practice of exporting goods to a country at a price lower than their selling price in their country of origin
Brain drain
the loss of talented and skilled workers attracted to other countries by greater rewards.
Dept Trap
when an economy borrows from overseas merely to pay the interest-servicing costs on its existing foreign debt
Structural Factors
Those which are underlying or persistent e.g. the composition of the export base, the international competitiveness of export and level of national savings
Cyclical factors
recurring patterns or fluctuations in economic activity that arise due to the natural expansion and contraction phases in the economy
Exchange rate
Forex Market
the market where currencies are traded.
Exchange Rate
the value of one currency for the purpose of conversion to another.
Question 2: What (composition) and with whom (direction) does Australia trade?
Composition
Composition of trade
The mix of goods and services traded.
Minerals
coal, iron ore, gold and alumina
primary commodities
wheat, wool, beef
service industries
education, financial services, insurance, tourism, transport, health and communications
Global Supply chain
the offshoring of production in several countries.
Direction
Trade Block
when a number of countries join together in a formal preferential trading agreement to the exclusion of other countries.
Regionalization
the rapid proliferation of regional trade agreements
Question 4: How Might we evaluate the costs and benefits of trade?
Balance of payments (BoPs)
BoP
The record of transactions between Australia and the rest of the world, consisting of the Current Account and the Capital and Financial Account.
Credit, Debit
Credit: money that flows in
Debit: money that flows out (denoted with a minus sign)
Current Account
Shows money flows from all exports and imports of goods and services, primary income flows (earnings on investments e.g. rent, profits, interest and dividends), as well as secondary income/ or non-market transfers (not earned through a factor of production e.g. overseas pensions and working foreigners sending money overseas) for a period of one year. These transactions are not reversible.
Capital & Financial Account
Capital account: includes capital transfers (e.g. conditional foreign aid linked to projects and debt forgiveness) and non-produced, non-financial assets (e.g. intellectual property rights).
Financial account: shows transactions in foreign financial assets and liabilities. These are categorized by five types of investments: direct, portfolio, financial derivatives, reserve assets and other investment
Surplus, Deficit
Surplus: receipts exceed payments
Deficit: payments exceed receipts
Net errors and omissions
statistical discrepancies in the balance of payments, which theoretically should always be zero.
indicators
GDP
the total market value of all final goods and services produced in an economy over a period of time
Terms of Trade
measures the relative movements in the prices of an economy’s imports and exports over a period of time. The index is calculated as export price index divided by import price index multiplied by 100. It affects the BOGS and the exchange rate