AS90795: Describe international trade and its causes and effects using economic models 2.2 Definitions Causes Effects Models AchievementMeritExcellence DescribeExplainFully Explain Definitions Causes Effects Models

Trade: Regional Trade Trade between different areas within the same country, with the same government and the same currency. International Trade Trade across national borders. Onshore Services …provided within its own borders by the exporting country to a foreign buyer. Offshore Services …provided by the exporting country to users overeas. Free Trade Trade between countries without government intervention. Protectionism Government measures that limit trade between countries. 2.2

Trade: 2.2 Demand and Supply:determination of domestic and international prices quantities imported or exported exchange rates Price ($) Q S NZ D NZ P NZ QPQP QCQC Market for an Imported Good Q NZ S world P world imports NZ is generally a price taker (v. small player in a very big world) so the world supply curve is horizontal. P NZ /Q NZ Pre-Trade equilibrium position. QCQC Quantity that consumers are able to purchase in NZ with trade QPQP Quantity that NZ producers will supply at the new trade price Q C –Q P Quantity imported.

Trade: 2.2 Bilateral Trade (between two countries): before trade each country has their own P/Q equilibrium. after trade a mutual price ( P trade ) is settled on that allows a quantity of exports to be produced in one country and sold in the other. Price ($) Q S NZ D NZ P NZ QCQC Q NZ Domestic Market QtQt P trade exports Price ($) Q S O/seas D O/seas PePe QlQl QtQt Overseas Market QeQe P trade imports

Trade: 2.2 Exchange Rates:determining the value of the currency in relation to other currencies P $NZ ($US) Q $NZ S $NZ D $NZ P Market the $NZ Q NZ S $NZ Supply of $NZ increased by greater imports, lower interest rates, or higher inflation rates than the rest of the world. D $NZ Demand for $NZ increased by greater exports, higher interest rates, or lower inflation than the rest of the world. The $NZ appreciates (increases in value) if there is an increase in demand or a decrease in supply. The $NZ depreciates (falls in value) if there is a decrease in demand or an increase in supply.

Trade: 2.2 Production Possibility Model: examining the reasons for international trade by comparing the opportunity costs of production. Cakes Cows Cakes Cows 20 Leftland Rightland Absolute Advantage: who produces the greatest quantity of each product? Comparative Advantage: who produces for the lowest [opportunity] cost? Each country specialises in what they are best at producingand trades their surplus for what they do not produce. X MX M