AOS 3: Economics - KK1

Australia and living standard

Australia’s international transactions

involve the buying of imports of goods and services from overseas, and the selling of exports of goods and services abroad

WHY DO COUNTRIES TRADE

they do not have the resources, or capacity to satisfy their own needs and wants. 

Australia’s exports of goods and services account for and include:

roughly 1% of the world’s international trade

Iron ore, coal, natural gas, education-related travel services and Personal travel (excl. education services) are major exports

Moving towards free trade in Australia involves

• the gradual reduction of government import restrictions (eg reduced tariff rates or taxes that are added to the cost of imports from overseas)

• the removal of direct government financial assistance to local firms (eg subsidies to Australian producers)

Free trade

when there are no tariffs, subsidies, quotas or other restrictions on the movement of goods, services and capital between countries.

Trade Liberalisation

the removal or reduction of restrictions or barriers on the free exchange of goods between nations.

Protectionist policies:

restrict imports and advantage local producers, and involve the use of tariffs, subsidies and import quotas

Absolute advantage

where one country can make a good or service cheaper than anywhere else in the world

Comparative advantage

the principle whereby a nation should focus on producing those goods or services where they have the greatest cost advantage

Exports:

goods and services that are produced in one country and sold to buyers in another

Imports

a good or service bought in one country that was produced in another

Gains from international trade

• lower prices

• greater choice

• access to resources

• economies of scale

• increased competition and efficiency

lower prices

freer trade (without restrictions) can allow businesses and households to purchase goods and services at a lower cost and ultimately lowering rates of inflation

Greater choice

International trade allows consumers to access goods and services from across the globe and conveniently through the world wide web.

access to resources

International trade allows countries to access natural, labour and capital resources that they would not otherwise have this enabling them to lift their output and incomes, and enjoy better living standards. 

economies of scale

the average costs per unit of output (final product) decreases with the increase in the scale of the output being produced. lower average unit costs, strengthen our international competitiveness, grow average incomes and purchasing power, and boost material living standards

increased competition and efficiency

With each country having different resources , international trade allows businesses to specialise in the production of particular types of goods and services where it is most efficient or has a comparative cost advantage.This increase in efficiency ensures that more output can be gained from the resources available, leading to greater satisfaction of our wants and wellbeing.