ATAR Economics Units 3 & 4

Syllabus

Unit 3: Australia and the global economy

This unit explores the linkages between economies and the concepts of globalisation, trade liberalisation and protection in relation to the Australian economy. Students examine Australia's trade, the recording of international transactions and the impact of these transactions on the Australian economy. Students use economics models.

In this guide, content taken directly from the syllabus is shown in purple.

Comparative Advantage

Comparative advantage is what occurs when an economy is better at producing a particular good or service compared to another. 

Specialization is when a producer focuses resources on producing one particular type of good at the expense of producing other goods. The idea is that the producer puts their efforts into those goods that they can most efficiently produce. 

Foreign Investment

Foreign investment involves capital flows from one country to another, granting extensive ownership stakes in domestic companies and assets. Foreign investments can be classified in one of two ways: direct and indirect. 

Foreign direct investments are the physical investments and purchases made by a company in a foreign country, typically by opening plants and buying buildings, machines, factories and other equipment in the foreign country. 

Foreign indirect investments involve corporations, financial institutions and private investors buying stakes or positions in foreign companies that trade on a foreign stock exchange. This type of investment is also sometimes referred to as a foreign portfolio investment.

Foreign Assets and Liabilities

The net foreign asset position of a country is the value of the assets that country owns abroad, minus the value of the domestic assets owned by foreigners. The net foreign asset position of a country reflects the indebtedness of that country.

The Australian Economy

The economy of Australia is a large mixed-market economy, with a GDP of A$1.69 trillion as of 2017. In 2017, Australia was the 13th-largest national economy by nominal GDP, and the 25th-largest goods exporter and 20th-largest goods importer. The Australian economy is dominated by its service sector, comprising 61.1% of the GDP and employing 79.2% of the labour force in 2016.  East Asia (including ASEAN and Northeast Asia) is a top export destination, accounting for about 64% of exports in 2016.  At the height of the mining boom in 2009–10, the total value-added of the mining industry was 8.4% of GDP. 

Free Trade & Protection

Free trade is the idea that trade between two countries should be unregulated or unhindered by government policy.

There are a range of 'protectionist' policies, which go against free trade and intervene in the market. These include tariffs, subsidies and quotas.

A tariff is a tax on an imported good or service that the purchaser of the good or service pays to the government.

subsidy, is an amount of money given by a government to a producer of a good or service in order to help keep their production costs down.

quota is a limit on the quantity of a good that can be sold. This could be in relation to both imports and exports, or in the domestic economy.

Balance of Payments

The balance of payments is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year. These transactions consist of imports and exports of goods, services and capital, as well as transfer payments, such as foreign aid and remittances.

International Competitiveness

International competitiveness occurs when a country can produce a good or service at a lower cost (and of the same quality) than other countries. This means that the country can sell the product at a lower cost, and they are therefore more competitive. Determinants of international competitiveness are those things which enable a country to be best- for example, cheap labor costs in China.

Global Interdependence

Global interdependence is the result of countries who mutually rely on each other to provide goods and services which each country needs. 

Linkages between economies grow over time, in forms including trade, foreign investment, tourism, and immigration. 

Terms of Trade

Terms of trade represent the ratio between a country's export prices and its import prices. How many units of exports are required to purchase a single unit of imports? The ratio is calculated by dividing the price of the exports by the price of the imports and multiplying the result by 100.

When more capital is leaving the country then is entering into the country then the country’s TOT is less than 100%. When the TOT is greater than 100%, the country is accumulating more capital from exports than it is spending on imports.

Production Possibility Frontier

production–possibility frontier is a curve which shows various combinations of the amounts of two goods which can be produced with the given resources and technology, where the given resources are fully and efficiently utilized per unit time.

The PPF makes some assumptions. Such as the country only produces two goods, it has a fixed amount of resources and a fixed level of technology, and that production is efficient.

Exchange Rates

An exchange rate is the value of one nation's currency versus the currency of another nation or economic zone. For example, how many U.S. dollars does it take to buy one euro? As of February 23, 2019, the exchange rate is 1.13, meaning it takes $1.13 to buy €1.