International trade lessons

International Trade

Achievement Standard 90795
4 Credits
Externally Assessed

90795 - International Trade
ECONOMICS 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 12
M, representing a well above 50% rate

No. papers attempted
60%
of M/E.
10

Pass Rates
Continuing improvement in
50%
achievement trends reflects proactive
classroom strategies and, in 2010, a 8
strong 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 Content
The 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 Content
The 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 Content
The 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
Trade

Government 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 Plan
WEEK 1 2 3 4
Explain the business cycle Business cycle Introduction to Friday Five
1 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 statistics

2 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
trade

3 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 and
4 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 Plan
WEEK 1 2 3 4
Describe what can be traded. Balance of Payments Describe BOP Exercises and tasks
5 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
components

6 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
index

7 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 Plan
WEEK 1 2 3 4
Evaluate concepts around free
8 trade and protectionism in NZ
and around the world
Explain the role of the WTO
and the World Bank
9 Explain and evaluate the
success or otherwise of
Government policies related
to international trade

10 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 ECONOMICS
AS2.2 Describe international trade and its causes and effects using economic models

The Importance of Trade to New Zealand
Understanding Economic Issues (Pages 130-226) Monday
See 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.
Whakamarama

THINKING – 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

New Zealand's Leading export
destinations
Australia

United States

Peoples Republic of
China
Japan

Other

Australia 23%
United States 10%
Peoples Republic of China 9.10%
Japan 7.10%
Other 51%

New Zealand's 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 export
categories (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 Government

18%
G I Change in Stocks

0% Exports
12% 15%
Imports

2008 Top Export Markets - Goods

24%

Australia
United States
Japan
53% 10% China
All Other

8%
5%

2008 Major Export Goods

23%

Dairy
Meat
Timber
52% Machinery
12% All Other

8%
5%

2008 Top Import Sources

19%

Australia
China
13% US
50%
Japan
All Other

9%

9%

2008 Top Imported Goods
18%

13%
50%

Mineral Fuels
Mechanical Machinery
Vehicles
11% Electrical Machinery
All Other
8%

Task

Annotate the world map with New Zealand’s major export
and import destinations, including the major products to each
location

World Trade

http://en.wikipedia.org/wiki/List_of_countries_by_exports

http://en.wikipedia.org/wiki/List_of_countries_by_imports

Major Exports of Goods and Servcies
in New Zealand 2008

18%
Tourism
Dairy
44%
Meat
18% Timber
Machinery
All Other
10%
4% 6%

LEVEL 2 ECONOMICS

The Importance of Tourism to New Zealand
Understanding Economic Issues (Pages 130-226) Monday
See 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
Whakamarama


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 above

An 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 firms

Which 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 employment

If the New Zealand government wishes to reduce the level of economic activity in the
economy, 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 taxation

A 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 markets

The 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 payments
The 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 rates

High 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/relatives

3% Conference/convention
Business
48%
Education/medical
Other(5)

31%

The Changing contribution of Tourism and Dairy to
New Zealand total Exports 1999 - 2009
60000

50000
Total Exports
Dairy
40000 Tourism
30000

20000

10000

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 Five
Questions 3 and 4 are based on the following hypothetical figures for a country’s
balance of payments in the year 2000
Current Account $ billion
Merchandise exports 95.5
Merchandise imports 92.0
Net services -6.8
Net income -31.5
Net unrequited transfers 4.8
3 The balance of merchandise trade is
(a) -$7.5 b (c) $7.5 b
(b) -$3.5 b (d) $3.5 b

4 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 unchanged

A 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 falling

The largest and most stable component of aggregate demand is
(a) saving
(b) consumption
(c) exports
(d) income

LEVEL 2 ECONOMICS

Basis of Trade - PPC
See 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
Whakamarama


The Basis Of Trade
Why do Nations Trade?
TRADE ALLOWS nations to consume beyond their maximum
domestic production possibility curve.

There is an uneven distribution of natural, human and capital
resources among nations. Therefore different countries have
comparative advantages (NOT absolute) on different products.

Efficient production of various goods requires different technologies
and combinations of resources. Thus it may be more efficient if
countries specialize.

http://welkerswikinomics.wetpaint.com/page/Comparative+Advantage

The Basis Of Trade
Comparative Advantage

Total output will be greatest when each good is
produced by the nation that has the lowest
opportunity cost domestically for that good.

It's 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

Country A Country B
Wool Wool

200
100

400 500
Meat Meat

TWO THEORETICAL COUNTRIES
Each making the same two products

The Basis Of Trade

Country A Country B
Wool Wool

200
100

400 500
Meat Meat

Absolute Advantage
Can make more with available resources

The Basis Of Trade
Country A Country B
Wool Wool

200
100

400 500
Meat Meat
200 Wool = 400 Meat therefore 100 Wool = 500 Meat therefore
1 Wool = 2 Meat (opportunity cost) 1 Wool = 5 Meat (opportunity cost)

400 Meat = 200 Wool therefore 500 Meat = 100 Wool therefore
1 Meat = 0.5 Wool (opportunity cost) 1 Meat = 0.2 Wool (opportunity cost)

The Basis Of Trade
Country A Country B
Wool 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
Country A Wool Country B
Wool

200

100
100
50

200 400 250 500

Meat Meat

The Basis Of Trade
Country A Wool Country B
Wool

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

Country A Country B
Wool Wool

200
100
100
50

200 400 250 500
Meat Meat

Trade

Review the idea of

Explain Gains from trade using
the PPC model

What do you remember?

Without trade, what is each
country able to consume?


Explain opportunity cost with reference
to these diagrams

Opportunity Cost is the cost of the next best opportunity
forgone when a choice is made. In this example the choice
to produce fish means milk must be sacrificed.

In NZ, milk units cost 0.67 fish units while in Scotland milk
units cost 2 fish units. NZ sacrifices the least (has the
lowest 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 fish
units cost 0.5 milk units. Scotland sacrifices fewer milk
units to make fish and therefore is more efficient.


Explain absolute advantage with
reference to these diagrams


Explain comparative advantage with
reference to these diagrams


A country should specialise in the
production of those goods that it
is relatively more efficient at
producing (in terms of costs and
resources used)


Current Output by sharing resources between milk and fish
COUNTRY MILK FISH Ratio of Ratio of fish
(units) (units) milk output to milk
output to output
fish
output
NEW 15 10
ZEALAND
SCOTLAND 4 8

The possible gains from
trade

Current output/consumption by sharing
resources between milk and fish
COUNTRY MILK FISH
NEW 15 10
ZEALAND
SCOTLAND 4 8

The possible gains from trade

Assume a $ for $ trade we can see how both
countries are better off by specialising and
trading


NZ can export
8 units of milk
To Scotland

Scotland can export
8 units of fish
To NZ


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

Exam Question 2007
Model answer

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

The New Zealand The American
beef market beef market

Price 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 market

Price 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 in
the demand and supply model

•Analyse the impact on consumers and
producers of trade
•Answer questions on the basis of trade
REVIEW
using the D & S model

Exam Question

Plus hand outs from Economic Issues
On oyster market and rugby jerseys

Decrease in overseas demand
The New Zealand beef market The American beef market
Sus

Snz
Pw Pw
Pw¹ 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 Rates
The price of a unit of local currency
expressed in terms of another

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

Pw
Pw
Pw¹
Pw¹
Dnz
Dme

X Quantity Quantity
M
X¹
M¹

Free Trade and Protectionism

What is Free Trade?
Trade between nations without government
intervention (protection)

What is Protectionism?
Government intervention in
trade between nations

What protection?

Tariffs/ Subsidies

Import licenses or quotas

Embargoes

Red tape

Tariffs – effect on the market model

Use notebook software
Sme On the board

Dme

Quantity

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