Grade 12 Economics > Unit 3 Topic 1 > Flashcards

Unit 3 Topic 1 Flashcards

Trade (96 cards)

Study These Flashcards
1
Q

tvWhat is the Circular Flow Model of income illustrate?

A

How money, goods and services move between households, businesses, government, the financial sector and overseas in an economy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why is the Circular Flow Model of income Useful?

A

It is useful as it shows the interdependence of sectors and helps us predict likely economic outcomes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What economy does the Circular Flow of Income represent?

A

An Open Economy (interacts freely with other countries)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

When is the Circular Flow of income model in equilibrium?

A

When Leakages match Injections (savings + Taxation + Imports = exports + government spending + Investments)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the economic problem?

A

The economic problem is the issue of scarcity, where limited resources must be allocated to satisfy unlimited needs and wants.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the International Economic Problem?

A

The IEP shows how countries with limited resources decide what to produce and trade to meet unlimited wants through specialization and efficient resource use.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the 5 reasons why nations trade?

A
  1. An unequal distribution of natural resoruces
  2. An unequal distribution of capitial and technology
  3. An unequal distribution of human skills
  4. Desire for an improved standard of living
  5. Profit motive
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is an unequal distribution of natural resources?

A

Some countries lack the natural resoruces needed to produce sufficient goods and services, relying on imports, while others export the surplus resoruces they have.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is Unequal Distribution of Capital and Technology?

A

Some countries lack the advanced machinery, infrastructure, or investment needed for efficient production and must import goods from more developed economies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is Desire for an improved standard of living?

A

Nations trade to raise living standards by giving consumers access to more goods and services — including those not made locally — offering better quality, more choice, and lower prices.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is an Unequal Distribution of Human Skills?

A

Some countries lack the specialised labour or expertise needed to produce certain goods or services and must import them from countries with more skilled workforces.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the Profit Motive?

A

businesses aim to reach larger markets, boost sales, lower costs, and maximise profits by producing and selling where it’s most efficient.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is composition of trade?

A

The breakdown of a countries exports and imports by product or sector, showing what goods and services are traded and in what quantities. (What we Trade)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is direction of trade?

A

Direction of trade refers to the countries or regions with which a nation conducts its international trade, indicating where its exports go and where its imports come from. (Who we trade with)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the order of export size by sector?

A
  1. Resource sector
  2. Rural sector
  3. Services sector
  4. Manufacturing sector
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the Difficulties and Barriers to international trade?

A
  1. Different Currencies
  2. Different Cost Structures
  3. Social Differences
  4. Technical Differences
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Why are different currencies a barrier to international trade?

A

because exchange rate changes create uncertainty in prices, costs, and profits, while currency conversion adds extra costs and risks, making trade more complex and expensive.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Why are different cost structures a barrier to international trade?

A

Different cost structures are a barrier to trade because variations in wages, production costs, and regulations make goods cheaper in some countries, causing unfair competition and undercutting domestic producers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Why are social differences a barrier to international trade?

A

Social differences are a barrier because variations in culture, language, and consumer preferences make it harder to market products, leading to misunderstandings, lower demand, and higher adaptation costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Why are technical differences a barrier to international trade?

A

Technical differences are a barrier because countries have different standards and safety rules, so businesses must adjust or re-certify products, adding extra time and cost.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Who are the benefiters of international trade?

A
  1. Consumers
  2. Domestic Companies that export
  3. Economic Growth
  4. Access to physical capital
  5. Improved Standard of living
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Why do consumers Benefit from international trade?

A

Consumers benefit from international trade because it gives them access to a wider variety of goods and services, often at lower prices and better quality than what might be available locally.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Why do domestic companies that export benefit from international trade?

A

it allows them to access larger markets, increase sales, and achieve economies of scale, boosting their profitability and competitiveness.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

why does economic growth benefit from international trade?

A

increasing export demand, attracting foreign investment, and driving innovation and productivity, which together raise national income and employment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Why does access to physical capital benefit from international trade?
allows countries to import machinery, technology, and infrastructure they may not produce themselves, helping to boost productivity and innovation.
26
Why does improved standard of living benefit from international trade
Trade improves living standards by providing more diverse, affordable, high-quality goods while helping create higher incomes and more jobs through export growth.
27
What are the drawbacks of international trade
1. Domestic Companies that cannot compete 2. Loss of jobs in uncompetitive industries 3. Regions which see a concentrated decline in uncompetitive industries.
28
Why are domestic companies that cannot compete a drawback of international trade?
because they may be underpriced or outperformed by cheaper or higher-quality imports, leading to loss of market share and lower profits.
29
Why are loss of jobs in uncompetitive industries a drawback of international trade?
local businesses that can’t match foreign prices or efficiency may be forced to downsize or shut down, displacing workers.
30
Why is regions which see a concentrated decline in uncompetitive industries a drawback of international trade?
Because widespread job losses and business closures can lead to economic decline, rising unemployment, and reduced regional development.
31
What Net benefits do international trade bring to a nation?
overall gains in efficiency, consumer choice, income, and economic growth.
32
What is the point of Trade Theories?
to Increase in overall economic output and growth
33
What is Absolute Advantage?
Adam Smith’s theory of absolute advantage suggests that a country should specialise in producing goods it can make more efficiently than other nations, using its factor endowments (like labour, land, or resources) to its advantage
34
How does specializing affect the global economy?
countries can increase overall efficiency and total global output.
35
What is comparative advantage?
David Riccardo’s theory of comparative advantage suggests that countries should specialise in producing goods they can make at a lower opportunity cost than others, even if they don’t have an absolute advantage.
36
What is the opportunity cost formula?
Opportunity cost of good A = (Quantity of good B given up/Quantity of good A gained)
37
What is Competitive Advantage?
Michael Porter's theory of competitive advantage suggests that countries succeed in international trade when their industries are highly productive, innovative, and internationally competitive, not just because of natural resources or low costs
38
What are the 4 factors of Porter Diamond?
1. Firm strategy, structure, and rivalry 2. Factor (input) conditions 3. Demand Conditions 4. Related and Supporting industries
39
What is factor conditions in the porter diamond?
The country must have strong production inputs like skilled labour, infrastructure, and technology that support advanced industries.
40
What is Demand conditions in the porter diamond?
There must be a sophisticated and demanding local market that pushes firms to innovate and improve quality.
41
What is Related and Supporting industries in the porter diamond?
The presence of efficient, competitive supplier and partner industries helps boost productivity and innovation.
42
What is Firm strategy, structure and rivalry in the porter diamond?
Local firms must have strong management, strategic goals, and face healthy domestic competition, which encourages efficiency and global competitiveness.
43
What is composition of Australia's Trade?
Composition of trade  refers to the breakdown of a country's exports and imports by product or sector, showing what goods and services are traded and in what quantities. "What we trade"
44
What is Direction of trade for Australia's Trade?
Direction of trade refers to the countries or regions with which a nation conducts its international trade, indicating where its exports go and where its imports come from. "Who we trade with"
45
Explain what Challenges there are to Australia's trade?
Limited competitive advantage in high-value sectors, reliance on commodities, geographic distance increasing trade costs, and strong global competition.
45
Explain what Opportunities there are to Australia's trade?
Trade liberalisation improving access to global supply chains and export markets, helping overcome geographic isolation and a small domestic market.
46
What does terms of trade measure?
The ratio of export prices to Import prices. shows the value of a nation's goods and services
47
When is the terms of trade favorable for a country?
When the Price of Exports Increase above imports, exporters earn more and the ‘terms of trade’ for the country are favorable.
48
When is the terms of trade unfavorable for a country?
When the Price of Imports Increase above exports, there are fewer injections of currency into the economy and the ‘terms of trade’ are unfavorable.
49
What does the price index track?
The price index tracks changes in the prices of goods and services that Australia exports and imports, showing whether prices are rising or falling over time."
50
What are the Terms of Trade Index calculator?
Terms of Trade Index = (Export Price Index / Import Price Index) x 100
51
What is the definition of an exchange rate?
An  exchange rate  is the price at which one currency can be exchanged for another via the foreign exchange market, and it reflects the relative purchasing power between countries.
52
What is the foreign exchange market?
The foreign exchange market is a global, decentralized system where currencies are traded, enabling international transactions by enabling the exchange of one currency for another.
53
What are the three main types of exchange rate systems?
1. Floating 2. Fixed 3. Managed
54
What are Floating Exchange Rates?
A floating exchange rate is a system where the value of a currency is determined by market forces—specifically, the supply and demand for that currency in the foreign exchange market.
55
What are the effects of an Appreciated AUD?
1. Australian exports become more expensive to foreign buyers 2. Australian imports become cheaper 3. There are a decreased levels of external debt 4. The government may be more able to repay interest on external debt 5. inflation may decrease
55
What is Appreciations?
Appreciation of a currency means its value increases relative to another currency, making imports cheaper and exports more expensive.
56
What are the effects of a Depreciated AUD?
1. Australian exports become less expensive 2. There is growth in income and employment 3. Australian imports become more expensive 4. There is an increased level of external debt 5. The RBA may increase interest rate (to attract foreign investment).
57
What is depreciations?
Depreciation of a currency means its value decreases relative to anther currency, making imports more expensive and exports cheaper.
58
What is Fixed Exchange rates?
Fixed exchange rates are a system where a country's currency value is tied to another major currency (like the US dollar or euro) or a basket of currencies.
59
What is revaluation in fixed exchange rates?
An official increase in the value of a currency in a fixed exchange rate system, making it stronger relative to other currencies.
60
What is Devaluation in fixed exchange rates?
An official decrease in the value of a currency in a fixed exchange rate system, making it weaker relative to other currencies.
61
What is managed exchange rates?
A managed exchange rate - also known as a dirty float - is a system where a currency's value is primarily determined by market forces in the foreign exchange market, but the central bank occasionally intervenes to stabilize or influence the rate.
62
What are the advantages of a floating exchange rate?
1. No need for large foreign currency reserves 2. Greater flexibility in monetary policy
63
What is the disadvantage of a floating exchange rate?
Floating exchange rates can be volatile, creating uncertainty for exporters and importers who may face unpredictable costs and revenues due to sudden currency value changes.
64
What is the advantage of a fixed exchange rate?
The stability and predictability of the exchange rate encourages growth of international trade and enables easier long-term planning for industry.
65
What is the disadvantage of a fixed exchange rate?
A stock of international currency reserves and gold is required to maintain the artificially high or low exchange rates.
66
What are the two groups of the balance of payments?
1. The current account 2. The Capital / Financial Account
67
What does the current account record?
The Current Account records all transactions involving the exchange of goods, services, income, and current transfers between Australia and the rest of the world.
68
What is a current account deficit?
A current account deficit means a country is spending more on imports than it is earning from exports
68
What is a Current Account Surplus?
A current account surplus means a country is earning more from its exports of goods, services, and income from abroad than it is spending on imports and outgoing payments.
69
What does the capital account record?
The Capital/Financial Account records transactions that involve the movement of money for investment purposes between Australia and the rest of the world.
70
What is a capital account surplus?
more money is coming into Australia from foreign investment and lending than is going out to other countries.
71
What is a Capital Account Deficit
more money is leaving Australia for investments and lending overseas than is coming in from other countries.
72
What is the Economic Objectives?
Economic objectives are the goals that governments aim to achieve,
73
What are the three key economic objectives?
1. Sustainable Economic Growth 2. Internal Stability 3. External Stability
74
What is Sustainable economic growth?
Sustainable economic growth is an economic objective that aims to increase the production of goods and services over time without harming the environment or using up resources needed by future generations. (3-4% GDP each year)
75
How does international trade help sustainable economic growth?
International trade helps Australia achieve sustainable economic growth by increasing demand for its exports, which supports business expansion, job creation, and higher national income.
76
How does international trade hinder sustainable economic growth?
International trade can also hinder sustainable economic growth if Australia becomes too dependent on global markets, over-utilizes resources to satisfy global demand, or experiences job losses in industries that can't compete with cheaper imports.
77
What is the internal stability objective?
Internal stability refers to achieving price stability (low inflation) and full employment, ensuring the economy operates efficiently without excessive inflation or unemployment
78
What is price stability (internal stability)?
Keeping inflation low, preserving the purchasing power of money; in Australia, this is achieved by targeting an annual inflation rate within the 2–3% band
79
What is full employment (internal stability)?
An objective that aims to ensure all individuals willing and able to work can find jobs, with Australia’s target unemployment band typically around 4–5%.
80
What is the external balance objective?
The aim to maintain a sustainable balance between a country's exports and imports, ensuring that international trade and financial flows do not lead to excessive foreign debt or long-term deficits in the balance of payments
81
What is excessive foreign debt? (external Balance)
Excessive foreign debt from foreign investment can be harmful to the economy because it may lead to higher interest/income payments abroad, reducing national income and limiting future economic growth.
82
What are the Long-term deficits in the BoP? (External balance)
A longstanding deficit in the balance of payments is harmful to the economy because it indicates that a country is consistently spending more on foreign goods, services, and investments than it earns from engaging in trade
83
what is primary income balance?
The primary income balance is the net amount of income earned from international economic activities, calculated by subtracting income paid to non-residents (debits) from income received from non-residents (credits).
84
What is open econmic?
a national economy that can freely interact with other economies through trade
85
what is aggregrate demand?
Total demand of goods and services
86
What is Gross Domestic Product? (GDP)
the total monetary value of all finished goods and services produced within a country's borders during a specific time period
87
what is free trade?
a policy where countries reduce or eliminate barriers, such as tariffs and quotas, to allow for the free flow of goods and services between them.
88
what is factor endowments?
How much FOP a country has in their possesion.
89
what is labor-intensive production?
a process or industry that requires a large number of human workers to produce goods or services, making labor costs a larger proportion of total costs than capital costs
90
what is capital-intensive production?
production methods that require a high level of investment in capital equipment and technology, rather than labor.
91
What is Trade balance?
the difference between a country's imports and exports of goods and services over a period of time
92
What is foreign Portfolio investment?
the purchase of foreign securities like stocks, bonds, and mutual funds that does not grant the investor control over the company.
93
What is foriegn direct Investment?
Foreign direct investment (FDI) occurs when a business or investor in one country puts money into a company in another country in order to establish a long-term presence and have meaningful control over how that company is run.
Grade 12 Economics
flashcards
Decks in class (1)
# Cards
Brainscape helps you reach your goals faster, through stronger study habits.
© 2026 Bold Learning Solutions. Terms and Conditions