Free WACE Economics Flashcard Review
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What distinguishes trade composition from trade direction?
Composition identifies the goods and services traded; direction identifies the partner economies.
Exports are $240b, imports $210b and GDP $1,000b. Calculate trade openness.
(240+210)/1,000×100=45%. Both trade flows enter the numerator.
Can a commodity’s export share fall while its export value rises?
Yes. Its share falls if total export value grows proportionately faster than that commodity’s value.
Why does higher nominal export revenue not establish higher export volume?
Revenue combines prices and quantities. Higher prices can raise revenue even when volumes are unchanged or lower.
How can stronger overseas demand initially affect Australian employment?
Higher export demand raises sales and production, increasing derived demand for labour, subject to capacity and productivity.
Why can imported machinery improve future production?
It adds capital services or embodies technology, potentially raising capacity and productivity when effectively used.
What risk accompanies reliance on one export market?
A downturn or trade disruption in that partner can create a concentrated external demand shock.
Does high trade openness prove a current-account surplus?
No. Openness uses X+M relative to GDP; the current account also depends on X−M and cross-border income and transfers.
Why distinguish residents from citizens in external accounts?
Transactions are classified by economic residence. Citizenship alone does not determine whether a transaction crosses the economy’s boundary.
What information must accompany a claimed ten-year trade trend?
The official series, start and end dates, units, nominal or real basis, and any classification or methodological changes.
What distinguishes absolute from comparative advantage?
Absolute advantage concerns output per resource input; comparative advantage concerns lower opportunity cost.
With linear PPFs, A can make 24 grain or 8 machines. What does one machine cost?
24/8=3 units of grain forgone.
With linear PPFs, B can make 20 grain or 10 machines. What does one grain cost?
10/20=0.5 machine forgone.
A sacrifices 3 grain per machine and B sacrifices 2. Who has comparative advantage in machines?
B, because its opportunity cost of a machine is lower.
If A’s machine costs 3 grain and B’s costs 2, can trade at 2.5 grain per machine benefit both?
Yes. B receives more than its 2-grain domestic cost, while A pays less than its 3-grain domestic cost.
Why does exchange at exactly one country’s opportunity cost not give both strict gains?
That country is indifferent between trade and domestic production; a strictly beneficial ratio lies between the two costs.
Can a country with absolute advantage in both goods still gain from trade?
Yes. Relative opportunity costs can differ, allowing mutually beneficial specialisation and exchange.
What assumption permits opportunity cost to be calculated from two intercepts as a constant ratio?
A linear PPF with fixed resources and technology over the relevant range.
Why can increasing opportunity costs limit complete specialisation?
As resources move into one industry, progressively less suitable inputs raise its marginal opportunity cost.
Does comparative advantage guarantee that every worker gains from trade?
No. Aggregate gains can coexist with adjustment losses for particular workers, firms or regions.