Economics IA1 ATAR
Economic Term | Lesson # | Definition |
Open economy | 1 | Any nation that trades with other nations. |
External (foreign) sector | 1 | The sector of the circular flow model that identifies economic influences external to the domestic economy. |
Exchange rates | 1 | The value of the currency of a nation expressed in terms of the currency of another nation. |
Commodity prices | 1 | The prices of raw materials and primary products such as iron ore, coal, wheat, oil and gold. These goods are traded in global markets and their prices change depending on demand and supply. |
Tariffs | 1 | Tariffs are taxes that a government places on imported goods and services, paid by the importer. They make imports more expensive, which protects local producers by making their goods relatively cheaper in comparison to imported goods. |
External stability | 1 | Refers to an economy's ability to meet its international financial obligations without causing problems for the rest of the economy. It means keeping the balance of payments exchange rates and foreign debt at sustainable levels. |
Internal balance | 1 | A state of the domestic economy in which there is full employment and acceptable levels of inflation. |
Economies of scale | 1 | Cost efficiencies that are derived by producing a large volume of standardised products. |
Prima facie | 1 | Latin term meaning "on the face of it" it refers to something that appears to be true on the first look at the evidence. |
Factor endowment |
| The supply of the factors of production (land, labour, capital and enterprise) that exists in a country. |
Trade deficit | 2 | When the value of a country's imports of goods and services is greater than the value of its exports (For example: if Australia imports $50 billion worth of cars, oil and electronics, but only exports $40 billion worth of iron ore, coal and agricultural products, then Australia has a trade deficit of $10 billion.) |
Intertemporal efficiency | 2 | Producing goods and services while ensuring resources will be available for future generations |
Infant industries | 2 | A new or emerging industry in a country that is not yet strong enough to compete with established foreign producers |
Imports | 2 | Goods that enter a nation from overseas. (In Australia, we import significant quantities of petrol, cars and machinery) |
Exports | 2 | Goods that a nation sells to foreign nations (in Australia, we export significant quantities of natural resources.) |
Multinational corporation (MNC) | 2 | A multinational corporation is an enterprise operating in several countries but managed from one home country; generally any country or group that generates a quarter of its revenue from operations outside of its home country. |
Intra-company trade | 2 | Occurs when trade occurs between affiliates or subsidiaries of the one organisation, often using transfer pricing. E.g. Google Australia might pay Google Singapore for the right to use its software or advertising technology. |
Transfer pricing | 2 | Transfer pricing is the price set for goods, services, or intellectual property when they are traded between branches or subsidiaries of the same company. Sometimes, these prices are set artificially high or low to move profits into countries with lower tax rates. |
Percentage Change | 3 | Formula: (New - Old)/Old x 100 |
Composition of trade | 4 | Refers to what we trade |
Direction of trade | 4 | Refers to where and with whom we trade |
Trade Theories | 7 | Trade theories attempt to explain how trading partners can benefit the most from the international exchange of goods and services to increase overall economic growth. |
Absolute Advantage | 7 | Absolute advantage is the ability of a nation to produce commodities more efficiently than another nation. Another way of saying this is that one nation produces at a lower direct resource cost than another. Adam Smith's theory (The Wealth of Nations, 1776). |
Lower direct resource cost | 7 | Fewer inputs like labour hours, raw materials, land or capital to produce one unit of output compared with another country. |
Comparative Advantage | 7 |
Comparative advantage is the ability of a nation to produce a product at a lower opportunity cost of production than another nation. David Ricardo's theory. |
Opportunity cost | 7 | Opportunity cost is the value of the next best alternative foregone when a choice is made. What you are giving up and what you are gaining |
Competitive Advantage | 8 | A nation's prosperity relies on the ability of its industry to be innovative and upgrade to adapt to technology. Michael Porter's Theory (The Competitive Advantage, 1985).
A theory developed by Harvard Economist Michael Porter in 1990.
Porter's Diamond of National Advantage To gain an advantage, all conditions need to complement each other.
Firm strategy, structure and rivalry Conditions governing company creation, management and domestic rivalry need to be disciplined, flexible and conducive to innovation.
Demand conditions Nations can benefit from having a clear view of consumer demand by developing a domestic market to anticipate international market needs. e.g. A car manufacturer may decide to launch their product in one nation before selling it internationally to review its performance.
Related and supporting industries A nation can gain an advantage by having efficient and internationally competitive supplier industries.
Factor conditions Nations can improve factors e.g. by investing in infrastructure (capital) and specialised training in the workforce (labour). |
Fixed Exchange Rates | 9 | A fixed exchange rate is a regime applied by a government or central bank which ties the country's currency official exchange rate to another country's currency or the price of gold. The purpose is to keep a currency's value within a narrow band. E.g. UAE, Qatar, Fiji, Morcco - tie their currency to the USD |
Managed Exchange Rates | 9 | A managed currency is one whose price and exchange rate are influenced by some intervention from a central bank. A central bank or monetary authority is the manager of money and often a nationalized institution that is given free control over the production and distribution of the money and credit for a country. E.g. China and Bangladesh |
Floating Exchange Rates | 9 | A floating exchange rate is a regime where the currency price of a nation is set by the forex (foreign exchange) market based on supply and demand relative to other currencies. E.g. Australia, UK, USA |
Tariff | 10 | A tariff is a tax imposed by a government on imported goods and services. Tariffs increase the price of imported products, making domestic goods more competitive and protecting local industries from foreign competition.
Tariffs are negative for domestic consumers, as consumers pay more for goods and services to offset the tariffs imposed on exporters. |
Quota | 10 | Limit on how many items can be exported e.g. 1000 sheep |
Subsidies | 10 | Support from the government to industries to reduce costs. This helps enable economies of scale. |
Embargo | 10 | A total ban on a good or service. |
Terms of trade | 12 | Terms of trade is the relationship between the price of exports and the price of imports. |
Terms of trade index | 12 | An index number used to show whether the relative movement in prices of exports and imports is favourable or unfavourable. |
Current account | 14 | Records day to day transactions for which payments are made or received |
Capital and Financial account | 14 | Includes the movement of capital funds between Australia and the rest of the world during a specified period of time |
Commodity prices | 15 | refer to the market prices for raw materials or primary goods that are traded globally. These include agricultural products (e.g., wheat, coffee, and sugar), energy resources (e.g., oil, natural gas, and coal), and metals and minerals (e.g., gold, iron ore, and copper).
Commodity prices are determined by the forces of supply and demand in global markets and can be influenced by factors such as weather conditions, geopolitical events, changes in global economic activity, and government policies. |
Foreign investment | 17 | Funds invested in an economy by the rest of the world. Australia has always relied on a net inflow of foreign investment to develop its economy. Foreign investment can be divided into two broad categories: Direct investment: any capital invested in an enterprise that gives the investor significant influence over the operation of the enterprise. Officially, a 10% or greater share in an enterprise is the threshold for determining ‘significant influence’ Portfolio investment: covers the acquisition by foreigners of shares in Australian enterprises. The principle is that the foreigner acquiring the shares exert no real influence over the operation (short term speculative investment) |
Foreign debt | 18 | Money borrowed from foreign lenders, such as a foreign bank. The principal (the amount borrowed) and the interest need to be repaid. |
Foreign equity | 18 | This is where foreigners own part/all of a business/asset in Australia. They receive dividends as a return until they sell their investment. |