International TradeAchievement Standard 90795 4 Credits Externally Assessed
90795 - International TradeECONOMICS 18 94% 100%Level Two 16 90%AS90795 80%An excellent rate of achievement at 14 75% 80%94%. 73%Of the 16 students who attempted the 70%paper 3 gained E and 7 gained 12M, representing a well above 50% rate No. papers attempted 60%of M/E. 10 Pass RatesContinuing improvement in 50%achievement trends reflects proactiveclassroom strategies and, in 2010, a 8strong group of motivated and 40%interested students. 6 30%OVERALL 4 Review markers report when 20% available and analyse areas of weakness. Rectify. 2 10% TARGET maintain E/M percentage in 2011. Maintain pass at minimum of 80%. 0 0% 2007 2008 2009 2010 Continue with strategies around student lead lessons and on-line E M A N curriculum support Analysis of 2010 NCEA results - Source: NZQA
AS ContentThe description of international trade will involve a selection from:• examples of international trade in goods and services• sources of imports and export markets• the balance of payments.
AS ContentThe use of economic models to illustrate causes of international trade will involve a selection from:• basis of trade using production possibility frontier to show absolute and comparative advantage• supply and demand analysis to show how the prevailing world prices, the cost of production, and domestic demand determine the quantities exported and imported, using the two country model and the model of New Zealand as a price taker.
AS ContentThe effects of international trade will involve a selection from:• the classification of transactions in New Zealand’s Balance of Payments and International Investment Position• links between fluctuations in trade and the growth and contraction of domestic industries• flow-on effects of these fluctuations in trade on growth and inflation.
AS Content – Government Policy on TradeGovernment economic policy objectives will be selected from:• price stability• economic growth• a balance of payments.
AS Content – Government Policy on Trade• trade agreements and organisations (eg Closer Economic Relations, World Trade Organisation, European Union)• trade regulations (eg tariffs, quotas)• government policies to promote trade• free trade versus protectionism• policy responses to unforeseen and external influences• impact of trade policies on growth and inflation.
Unit PlanWEEK 1 2 3 4 Explain the business cycle Business cycle Introduction to Friday Five1 Identify stages in the business continued International Trade Examples of successful cycle US resit opportunity How important is trade to export and import Explain the impact on the New Zealand companies economy at different stages Review statistics2 Identify key import and export Illustrate a world map World trade statistics markets and products depicting News Review trade in services. Identify volumes/values and Zealand’s trade A closer look at NZ discuss Use statistics to tourism stats illustrate the change in trade3 Explain Comparative Review concept Review Gains from Trade DO group work task on advantage and absolute Comparative Advantage and complete exercises PPC models. advantage Explain Gains from trade using PPC model Students to present Use PPC curves to explain the using a PPC model illustrations back work as a group. basis of trade See Trade 5 Page 154, W/o notes Explain the basis of trade Review concepts and Explain the impact of Review concepts and4 using Supply and Demand complete exercises changes in COP on S and complete exercises model changes in D on the Explain the two country model model Explain a horizontal world supply curve.
Unit PlanWEEK 1 2 3 4 Describe what can be traded. Balance of Payments Describe BOP Exercises and tasks5 Define Visibles and Invisibles, Define BOP and its Define the financial Onshore and offshore services relevance in NZ Account and its Explain regional trade and Define the Current components present examples in NZ account and its components Define the Capital Account and its components6 Explain the exchange rate Exercises and tasks Define the terms of trade using the D and S model and their relevance to the Explain appreciation and NZ economy depreciation of exchange rate Explain the trade weighted index7 Define the trade cycle and Explain and evaluate the Explain and evaluate the Use Ratfink fluctuations in trade. economic effects of economic effects of Give examples of sunrise and changing trade patterns changing trade patterns Resources 13 sunset industries Possible case study or Explain the flow on effects of research task here? changing trade patterns
Unit PlanWEEK 1 2 3 4 Evaluate concepts around free8 trade and protectionism in NZ and around the world Explain the role of the WTO and the World Bank9 Explain and evaluate the success or otherwise of Government policies related to international trade10 Investigate the impacts and effects of Globalisation
Resources• Link to Activities• Links to Statistics, NZ Trade and Enterprise, Extra tuition,• Links to other PowerPoint on trade, plus one on BOP and Exchange Rates
LEVEL 2 ECONOMICSAS2.2 Describe international trade and its causes and effects using economic modelsThe Importance of Trade to New ZealandUnderstanding Economic Issues (Pages 130-226) MondaySee resources 28th Mar 2011 Why trade is important to the New Zealand Economy (the value of trade in relation to GDP) The major trade partners and DO KNOW Whakamahi Matauranga goods and services o Board work Why New Zealand must trade o Note taking in order to gain access to many oWorkbook Page of the goods and services we 137 UNDERSTAND consume. WhakamaramaTHINKING – MANAGING SELF – PARTICIPATING AND CONTRIBUTING - RELATING TO OTHERS – USING LANGUAGE, SYMBOLS and TEXT
Why is Trade Important?http://www.treasury.govt.nz/economy/overview/2008/nzefo-08.pdf
Why is Trade Important?http://www.treasury.govt.nz/economy/overview/2008/nzefo-08.pdf
New Zealands Leading export destinations Australia United States Peoples Republic of China Japan OtherAustralia 23%United States 10%Peoples Republic of China 9.10%Japan 7.10%Other 51%
New Zealands Major Import Locations Australia Peoples Republic of China United States Japan Other Australia 18.50% Peoples Republic of China 15.20% United States 10.80% Japan 7.30% Other 48.20%
New Zealand’s highest exported goods by value Dairy Produce Meat and Edible Offal Wood and articles of wood Minerals Other Dairy Produce 20.20% Meat and Edible Offal 13.00% Wood and articles of wood 5.80% Minerals 4.80% Other 76.20%
New Zealand’s highest imported goods by value Mineral fuels Mechanical Machinery Electrical machinery Vehicles Other Mineral fuels 14.40% Mechanical Machinery 12.70% Electrical machinery 10.10% Vehicles 7.90% Other 54.90%
New Zealand’s top overall exportcategories (either goods or services) by dollar value. Dairy Produce Meat and edible meat offal Wood and arti cles of wood Mineral fuels (Dollar Amounts in Millions) Dairy Produce $8,016 Meat and edible meat offal $5,142 Wood and arti cles of wood $2,314 Mineral fuels $1,891
NZ GDP 2008 Consumption Spending 19% M C 36% Gross Fixed Capital Formation (Investment) X Government18% G I Change in Stocks 0% Exports 12% 15% Imports
2008 Top Imported Goods 18% 13%50% Mineral Fuels Mechanical Machinery Vehicles 11% Electrical Machinery All Other 8%
TaskAnnotate the world map with New Zealand’s major exportand import destinations, including the major products to eachlocation
Major Exports of Goods and Servcies in New Zealand 2008 18% Tourism Dairy44% Meat 18% Timber Machinery All Other 10% 4% 6%
LEVEL 2 ECONOMICSAS2.2 Describe international trade and its causes and effects using economic modelsThe Importance of Tourism to New ZealandUnderstanding Economic Issues (Pages 130-226) MondaySee resources 4th April 2011 Why tourism is important to the New Zealand Economy (the value of tourism in relation to GDP) The major tourist markets DO KNOW Whakamahi Matauranga o Board work Why New Zealand must o Note taking develop tourism as an export oWorkbook Page UNDERSTAND WhakamaramaTHINKING – MANAGING SELF – PARTICIPATING AND CONTRIBUTING - RELATING TO OTHERS – USING LANGUAGE, SYMBOLS and TEXT
Which of the following characteristics are commonly associated with a cyclical downturn? (i) declining incomes and employment opportunities (ii) rising general level of prices (iii) a contraction in new investment (a) (i) & (ii) only (c) (ii) & (iii) only (b) (i) & (iii) only (d) all of the aboveAn inflationary gap occurs when the level of(a) aggregate expenditure is greater than that required for full employment level of income and output(b) aggregate expenditure is greater than the supply of output at current levels of income(c) spending by households and firms causes output to contract(d) net investment causes a multiplier effect greater than expected by firmsWhich of these would not be evident in the peak of the business cycle?(a) a decreasing unemployment rate(b) spending on consumer durables(c) falling interest rates(d) rising investment expenditures
Fiscal policy refers to the manipulation of government income and expenditure to (a) control the volume and price of money (b) limit the rate of increase in incomes (c) affect the value of $NZ on world financial markets (d) affect the level of total expenditure, output and employmentIf the New Zealand government wishes to reduce the level of economic activity in theeconomy, appropriate fiscal policy would be (a) bond sales by the central bank to the money market (b) decrease spending and/or increase the level of taxation (c) increase spending and/or decrease the level of taxation (d) decrease spending and/or decrease the level of taxationA loosening of monetary policy by the Reserve Bank will lead to (a) higher interest rates and an expansion in the money supply (b) higher interest rates and a contraction in the money supply (c) lower interest rates and an expansion in the money supply (d) lower interest rates and a contraction in the money supply
The main purpose of monetary policy is to (a) regulate the behaviour of financial institutions (b) regulate the level of household saving (c) influence the level of economic activity (d) control the value of $NZ on world currency marketsThe effect of a contractionary monetary policy on aggregate demand can result in (a) a higher level of economic growth (b) a lower budget deficit (c) a lower value of $NZ (d) an increase in welfare paymentsThe level of business investment is influenced mainly by (a) changes in savings levels (b) changes in income levels (c) changes in nominal interest rates (d) changes in real interest ratesHigh rates of inflation in New Zealand tend to be associated with (a) high real interest rates (b) high nominal interest rates (c) low real interest rates (d) low nominal interest rates
Tourism to New Zealand• Identify the importance of tourism to New Zealand’s total exports• Who are New Zealand’s major tourist sources?• Explain trends in New Zealand’s tourism export industry
Where do our tourists come from 2008 Other Americas 3% 12% Oceania Europe 44% 21% Asia 20%
Why are tourists coming 2% 6% Holiday/vacation 10% Visit friends/relatives3% Conference/convention Business 48% Education/medical Other(5) 31%
The Changing contribution of Tourism and Dairy to New Zealand total Exports 1999 - 20096000050000 Total Exports Dairy40000 Tourism300002000010000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Summary Stats – 2007!• GDP = $165 billion• EXPORTS = $48 billion 0r 29% of GDP• TOURISM = $8.8 billion or 18% of exports followed by Dairy $6.4 b, Meat $4.4 b, Wood $2.1 b and Machinery $1.5 b.• IMPORTS = $50 billion
So why international trade?• Access goods and services not available in New Zealand e.g. Oil in sufficient quantities – exports earn overseas currency which allows us to purchase overseas goods• NZ can specialise in what we are best at and buy everything else from others
Friday FiveQuestions 3 and 4 are based on the following hypothetical figures for a country’sbalance of payments in the year 2000Current Account $ billionMerchandise exports 95.5Merchandise imports 92.0Net services -6.8Net income -31.5Net unrequited transfers 4.83 The balance of merchandise trade is(a) -$7.5 b (c) $7.5 b(b) -$3.5 b (d) $3.5 b4 The balance on goods and services is equal to(a) - $ 10.3 b (c) - $ 6.8 b(b) - $ 3.3 b (d) - $ 2.3 b
In an open economy, when national income rises, other things being equal(a) total exports tend to fall(b) total imports tend to rise(c) total imports tend to fall(d) imports and exports remain largely unchangedA reduction in the current account deficit is most likely to occur when(a) there is an increase in borrowings from overseas(b) interest rates throughout the world are rising(c) higher tariffs are imposed by other countries on New Zealand’s goods(d) the domestic rate of inflation is fallingThe largest and most stable component of aggregate demand is(a) saving(b) consumption(c) exports(d) income
LEVEL 2 ECONOMICSAS2.2 Describe international trade and its causes and effects using economic modelsBasis of Trade - PPCSee resources The definition of absolute and comparative advantage DO KNOW Whakamahi Matauranga o Board work How to identify a country with o Note taking comparative advantage oWorkbook Page UNDERSTAND oP153 WhakamaramaTHINKING – MANAGING SELF – PARTICIPATING AND CONTRIBUTING - RELATING TO OTHERS – USING LANGUAGE, SYMBOLS and TEXT
The Basis Of TradeWhy do Nations Trade?TRADE ALLOWS nations to consume beyond their maximumdomestic production possibility curve.There is an uneven distribution of natural, human and capitalresources among nations. Therefore different countries havecomparative advantages (NOT absolute) on different products.Efficient production of various goods requires different technologiesand combinations of resources. Thus it may be more efficient ifcountries specialize.http://welkerswikinomics.wetpaint.com/page/Comparative+Advantage
The Basis Of Trade Comparative AdvantageTotal output will be greatest when each good isproduced by the nation that has the lowestopportunity cost domestically for that good. Its beneficial for a country to specialize and trade even if that country is more productive than the possible trading partners in everything (absolute advantage). If there are relative cost differences in the production process, countries should specialize.
The Basis Of Trade Comparative Advantage Country A Country BWool Wool 200 100 400 500 Meat Meat TWO THEORETICAL COUNTRIES Each making the same two products
The Basis Of Trade Comparative Advantage Country A Country BWool Wool 200 100 400 500 Meat Meat Absolute Advantage Can make more with available resources
The Basis Of Trade Comparative Advantage Country A Country BWool Wool 200 100 400 500 Meat Meat 1 Wool = 2 Meat 1 Wool = 5 Meat 1 Meat = 0.5 Wool 1 Meat = 0.2 Wool Should specialise Should specialise Should in Wool because trade in Meat because better at it better at it!
The Basis Of Trade Comparative Advantage Country A Wool Country BWool 200 100 100 50 200 400 250 500 Meat Meat
The Basis Of Trade Comparative Advantage Country A Wool Country BWool Export 100 Import 100 Still consume 100 consume 50 more 200 100 Export 250 100 Still consume 250 50 200 400 250 500 Meat Meat Import 250 consume 50 more
The Basis Of Trade Comparative Advantage Country A Country BWool Wool 200 100 100 50 200 400 250 500 Meat Meat
TradeReview the idea ofComparative AdvantageExplain Gains from trade usingthe PPC model
What do you remember? Without trade, what is each country able to consume?
What do you remember? Explain opportunity cost with reference to these diagrams
Opportunity Cost is the cost of the next best opportunityforgone when a choice is made. In this example the choiceto produce fish means milk must be sacrificed.In NZ, milk units cost 0.67 fish units while in Scotland milkunits cost 2 fish units. NZ sacrifices the least (has thelowest opportunity cost and therefore is more efficient(has comparative advantage in milk production).In NZ fish units cost 1.5 milk units while in Scotland fishunits cost 0.5 milk units. Scotland sacrifices fewer milkunits to make fish and therefore is more efficient.
What do you remember? Explain absolute advantage with reference to these diagrams
What do you remember?Explain comparative advantage withreference to these diagrams
Comparative AdvantageA country should specialise in theproduction of those goods that itis relatively more efficient atproducing (in terms of costs andresources used)
Comparative AdvantageCurrent Output by sharing resources between milk and fishCOUNTRY MILK FISH Ratio of Ratio of fish (units) (units) milk output to milk output to output fish outputNEW 15 10ZEALANDSCOTLAND 4 8
The possible gains from tradeCurrent output/consumption by sharingresources between milk and fishCOUNTRY MILK FISHNEW 15 10ZEALANDSCOTLAND 4 8
The possible gains from trade Assume a $ for $ trade we can see how both countries are better off by specialising and trading
The possible gains from trade NZ can export 8 units of milk To Scotland Scotland can export 8 units of fish To NZ
The possible gains from trade NZ consumes more milk and less fish but eats beyond its own PPC Scotland consumes twice the milk and the same quantity of fish and eats beyond its own PPC
Demand and Supply Model• Explain the basis of trade using Supply and Demand model• Explain the two country model• Explain a horizontal world supply curve.
Basis of Trade - Coverage• Determining quantities imported and exported – what are the influencing factors?• How technology and factor endowments affect the cost of production• What are the influences on demand and supply?• How trade policy affects the model
Assumptions• Demand and Supply Theory applies• Use two country, single good model• Relative prices are compared in in NZ dollars
Demand and Supply Model The New Zealand The American beef market beef marketPrice Sus Price(NZ$) (NZ$) 10 10 8 8 Snz 6 6 4 4 2 2 Dnz Dnz 100 200 300 400 500 600 100 200 300 400 500 600 Quantity Quantity (000 tonnes) (000 tonnes)
The New Zealand beef market The American beef marketPrice Price Sus(NZ$) (NZ$) 10 10 8 8 Snz 6 6 4 4 2 2 Dnz Dnz 100 200 300 400 500 600 100 200 300 400 500 600 Quantity (000 tonnes) Quantity (000 tonnes) New Zealand Surplus - American Shortage - domestic Exports domestic Imports consumption production New Zealand production American Consumption
•Review the basis of trade as illustrated inthe demand and supply model•Analyse the impact on consumers andproducers of tradeDemand and Supply Model•Answer questions on the basis of tradeREVIEWusing the D & S model
Exam QuestionPlus hand outs from Economic IssuesOn oyster market and rugby jerseys
Decrease in overseas demand The New Zealand beef market The American beef market Sus SnzPw PwPw¹ Pw¹ Dus Dnz Quantity (000 tonnes) Quantity (000 tonnes) X M X¹ M¹
Objectives 31st Oct 2001• Explain the impact of exchange rates on international trade• Define Factor Endowment for a country• Describe how a countries factor endowments affects its trade• Preview Test on Thursday
Exchange Rates• Demand for $NZ is created by the demand for our goods and services• Higher the demand for NZ currency (ceteris parbus) the higher the price• Supply of $NZ generated by our demand for imports.
Exchange RatesThe price of a unit of local currency expressed in terms of another
PAGE 190 - 193 Write on Notes Organise into 4 groups EXPERTS LEARN and TEACH Question 1 Question 2 No. off 1 - 4 10 – 15 Mins Question 3 Question 4
Factor Endowments• Refers to scarcity or abundance of a countries resources• Basis of trade largely related to differences in FE’s between countries.• Abundant resources sees tendency towards utilisation of that resource in production – Why? Lower Costs• Therefore NZ focus on agriculture
Factor Endowments Middle East oil market New Zealand oil market Snz Snz1 Sme PwPw Pw¹Pw¹ Dnz Dme X Quantity Quantity M X¹ M¹
Free Trade and ProtectionismWhat is Free Trade? Trade between nations without government intervention (protection)What is Protectionism? Government intervention in trade between nations
What protection?Tariffs/ SubsidiesImport licenses or quotasEmbargoesRed tape
Tariffs – effect on the market model Use notebook software Sme On the board Dme Quantity