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Economics NCEA 2
Trade and Inflation
| Question | Answer |
|---|---|
| Describe what is meant by resource (factor) endowments. | The natural resources within a region. |
| What is regional trade? | Trade between regions (cities etc...) in the same country under the same government. |
| What is international trade? | Trade across national borders. |
| Explain how resource endowments in different parts of New Zealand have led to regional specialisation and trade. | Different regions have different natural resources, they specialise in producing particular products and trade their surplus with other regions to get other products they want. |
| Identify assumptions made when using the two-country trade model. | Only two countries, no transport costs, prices set in one currency, no trade barriers, ceteris paribus. |
| Why is it necessary, when using a two-country trade model illustrating trade in a product, to use the same currency on both diagrams? | So the relative prices in each country can be compared. |
| Describe why New Zealand has a comparative advantage in the production of primary products for the world market. | NZ has abundant natural resources for farming; a high degree of farming skills; we have better technology in those industries. The opportunity cost is lower than in overseas countries. |
| Identify items the two-country trade demand and supply model is useful for illustrating changes to. | Factors affecting supply and demand in either country, prices in either country, quantities exported and imported, quantities supplied and demanded in either country. |
| Explain how a higher exchange rate causes an exporter's profits to decline. | It means exporters receive fewer dollars when selling goods overseas so their profits fall; the higher prices generate a fall in quantity demanded therefore fewer profits. |
| If manufacturing exporters shift their production overseas, explain how it could impact on economic growth. | Growth will fall as exports fall and imports rise. |
| Explain how the loss of exports caused by an outbreak of mad-cow disease would have flow on effects on the domestic economy. | There would be lower income for farmers; less spending by farmers means lower demand for goods and services, lower economic growth and higher unemployment; decreased current account balance. |
| Explain how profits act as a financial incentive to relocate capital form industries experiencing falling demand to industries experiencing increasing demand. | Industries with falling demand experience falling profit, so will reallocate capital to produce gods for which demand is increasing and therefore becoming relatively more profitable. |
| Describe what happens in an industry when it contracts. | Firms close down; workers are laid off; profits fall; sales fall; revenue falls; employment falls; production falls. |
| Describe what is meant by the domestic market. | The New Zealand market; the country's market. |
| Explain why exporters profits are reduced when the exchange rate appreciates. | They receive fewer dollars when they exchange the foreign currency they are paid in; It makes New Zealand-made goods more expensive for overseas buyers so quantity demanded falls. |
| Describe actions that an exporting firm with reduced profits can take to stay in business when there is a downturn i the local economy. | Lay off staff; diversify into other products; focus more on developing products for domestic maket; lower prices; cut costs. |
| What are the most important commodities (by dollar value) that are imported into NZ? | Motor vehicles, oil, electronic goods, clothes. |
| What are the most important commodities (by dollar value) that are exported from NZ? | Dairy products, meat, wood (forestry) products, machinery and equipment. |
| What is meant by the theory of comparative advantage? | A country should specialise in the production of those goods that it is relatively more efficient at producing. |
| List the assumptions that the theory of comparative advantage is based on. | Two goods only, no transport costs, free trade, mobility of resources within a country and constant costs - no diminishing returns; i.e., a straight line production possibility curve. |
| Why is the world supply curve drawn horizontally? | The small size of the NZ market relative to world supply means that the rest of the world will meet NZ's requirements at the same price. |
| Outline factors, other than exchange rate movements, that will influence the demand for NZ's exports. | Quality of NZ made products/ overseas countries' income/ overseas countries' tastes and preferences. |
| What contributes to the balance on goods? | Export of goods minus import of goods. Goods include: cheese, wool, timber, oil, equipment etc... |
| What contributes to the balance on services? | Export of services minus import of services. Services include: transport, insurance, tourism, government services etc... |
| What contributes to the balance on income? | Income form investment abroad minus income from foreign investment. Income includes: dividends, interest, profit transmitted between countries. |
| What contributes to the balance on current transfers? | Inflow of current transfers minus outflow of current transfers. Current transfers include: gifts of goods and services, foreign aid and money sent to relatives overseas. |
| What contributes to the balance on current account? | Balance on goods, services, income and transfers. |
| What contributes to the balance on capital account? | Non-produced, non-financial assets. Capital account inflow minus capital account outflow. |
| What contributes to the balance on financial account? | Foreign investment in NZ minus NZ investment abroad. Finances include: trade between NZ and the rest of the world in existing assets, investment in new or existing business operations, loans, loan repayments etc... |
| What contributes to the balance of payments? | Current account plus capital account plus financial account. |
| What contributes to the net errors and omissions? | The opposite figure of the balance of payments to make the accounts equal zero. Eg if B of P equals -$540m, this equals $540m. |
| What is the difference between a firm and an industry? | A firm is a single business while and industry is the sum of all firms which produce one type of product. |
| What is a sunrise industry? | An expanding industry where prospects and profits are likely to be improving. |
| What is a sunset industry? | A declining industry where resources will be shifted away into other industries where their prospects are better and the returns to the owners are higher. |
Created by:
caitlinrox
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