International trade lessons

International Trade

Achievement Standard 907954 Credits

Externally Assessed

2007 2008 2009 20100

2

4

6

8

10

12

14

16

18

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

80%

73%75%

94%

90795 - International Trade

N A M E

No. papers att

empted

Pass Rates

Analysis of 2010 NCEA results - Source: NZQA

An excellent rate of achievement at 94%.Of the 16 students who attempted the paper 3 gained E and 7 gained M, representing a well above 50% rate of M/E.Continuing improvement in achievement trends reflects proactive classroom strategies and, in 2010, a strong group of motivated and interested students.

OVERALLReview markers report when available and analyse areas of weakness. Rectify.TARGET maintain E/M percentage in 2011. Maintain pass at minimum of 80%.Continue with strategies around student lead lessons and on-line curriculum support

ECONOMICSLevel TwoAS90795

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 PlanWEEK 1 2 3 4

1 Explain the business cycleIdentify stages in the business cycleExplain the impact on the economy at different stages

Business cycle continuedUS resit opportunity

Introduction to International TradeHow important is trade to New ZealandReview statistics

Friday FiveExamples of successful export and import companies

2 Identify key import and export markets and productsIdentify volumes/values and discuss

Illustrate a world map depicting News Zealand’s tradeUse statistics to illustrate the change in trade

World trade statisticsReview trade in services.A closer look at NZ tourism stats

3 Explain Comparative advantage and absolute advantageUse PPC curves to explain the basis of tradePage 154, W/o notes

Review concept Comparative AdvantageExplain Gains from trade using a PPC model

Review Gains from Trade and complete exercises using PPC model illustrations

DO group work task on PPC models.Students to present back work as a group.See Trade 5

4 Explain the basis of trade using Supply and Demand modelExplain the two country modelExplain a horizontal world supply curve.

Review concepts and complete exercises

Explain the impact of changes in COP on S and changes in D on the model

Review concepts and complete exercises


5 Describe what can be traded.Define Visibles and Invisibles, Onshore and offshore servicesExplain regional trade and present examples in NZ

Balance of PaymentsDefine BOP and its relevance in NZDefine the Current account and its componentsDefine the Capital Account and its components

Describe BOPDefine the financial Account and its components

Exercises and tasks

6 Explain the exchange rate using the D and S modelExplain appreciation and depreciation of exchange rateExplain the trade weighted index

Exercises and tasks Define the terms of trade and their relevance to the NZ economy

7 Define the trade cycle and fluctuations in trade.Give examples of sunrise and sunset industriesExplain the flow on effects of changing trade patterns

Explain and evaluate the economic effects of changing trade patternsPossible case study or research task here?

Explain and evaluate the economic effects of changing trade patterns

Use Ratfink Resources 13


8 Evaluate concepts around free trade and protectionism in NZ and around the worldExplain 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

http://www.stats.govt.nz/

http://www.tutor2u.net/

LEVEL 2 ECONOMICSAS2.2 Describe international trade and its causes and effects using economic models

The Importance of Trade to New ZealandUnderstanding Economic Issues (Pages 130-226)See resources

KNOWMatauranga

DOWhakamahi

UNDERSTANDWhakamarama

Why trade is important to the New Zealand Economy (the value of trade in relation to GDP)The major trade partners and goods and services

Why New Zealand must trade in order to gain access to many of the goods and services we consume.

o Board worko Note takingoWorkbook Page 137

Monday28th Mar 2011

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

AustraliaUnited StatesPeoples Republic of ChinaJapanOther

New Zealand's Major Import Locations

Australia 18.50%Peoples Republic of China 15.20%United States 10.80%Japan 7.30%Other 48.20%

Australia

Peoples Republic of China

United States

Japan

Other

New Zealand’s highest exported goods by value

Dairy Produce 20.20%Meat and Edible Offal 13.00%Wood and articles of wood 5.80%Minerals 4.80%Other 76.20%

Dairy ProduceMeat and Edible OffalWood and articles of woodMineralsOther

New Zealand’s highest imported goods by value

Mineral fuels 14.40%Mechanical Machinery 12.70%Electrical machinery 10.10%Vehicles 7.90%Other 54.90%

Mineral fuelsMechanical MachineryElectrical machineryVehiclesOther

New Zealand’s top overall export categories (either goods or services) by dollar value.

Dairy ProduceMeat and edible meat offalWood and arti cles of woodMineral fuels

Dairy Produce $8,016Meat and edible meat offal $5,142Wood and arti cles of wood $2,314Mineral fuels $1,891

(Dollar Amounts in Millions)

NZ GDP 2008

36%

15%12%0%

18%

19%

Consumption SpendingGross Fixed Capital Forma-tion (Investment)GovernmentChange in StocksExportsImports

C

IGX

M

Major Export Markets - Goods

2008 Top Export Markets - Goods

24%

10%

8%

5%

53%

AustraliaUnited StatesJapanChinaAll Other

Major Export Products

2008 Major Export Goods

23%

12%

8%

5%

52%

DairyMeatTimberMachineryAll Other

Major Import Markets

2008 Top Import Sources

19%

13%

10%

9%

50%

AustraliaChinaUSJapanAll Other

Major Import Products

2008 Top Imported Goods18%

13%

11%

8%

50%

Mineral FuelsMechanical MachineryVehiclesElectrical MachineryAll Other

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_imports

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

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

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

18%

18%

10%

6%4%

44%

Major Exports of Goods and Servciesin New Zealand 2008

TourismDairyMeatTimberMachineryAll Other


The Importance of Tourism to New ZealandUnderstanding Economic Issues (Pages 130-226)See resources

KNOWMatauranga

DOWhakamahi


Why tourism is important to the New Zealand Economy (the value of tourism in relation to GDP)The major tourist markets

Why New Zealand must develop tourism as an export

o Board worko Note takingoWorkbook Page

Monday4th April 2011


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

Oceania44%

Asia20%

Europe21%

Americas12%

Other3%

Where do our tourists come from 2008

48%

31%

2%

10%

2%

6%

Why are tourists coming

Holiday/vacation

Visit friends/relatives

Conference/convention

Business

Education/medical

Other(5)

19992000

20012002

20032004

20052006

20072008

20090

10000

20000

30000

40000

50000

60000

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

Total ExportsDairyTourism

NZ Economy

Summary Stats – 2007!

• GDP = $165 billion

• EXPORTS = $48 billion 0r 29% of GDP

• TOURISM = $8.8 billion or 18% of exportsfollowed 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

Trends in Trade

http://www.tutor2u.net/economics/presentations/a2economics/macro/InternationalTrade/default.html

Friday FiveQuestions 3 and 4 are based on the following hypothetical figures for a country’s balance of payments in the year 2000Current Account $ billionMerchandise exports 95.5Merchandise imports 92.0Net services -6.8Net income -31.5Net 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


Basis of Trade - PPCSee resources

KNOWMatauranga

DOWhakamahi


The definition of absolute and comparative advantage

How to identify a country with comparative advantage

o Board worko Note takingoWorkbook Page

oP153


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

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

The Basis Of TradeComparative 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.


Country A Country BWool

Meat Meat

Wool

200

400

100

500

TWO THEORETICAL COUNTRIESEach making the same two products



Meat Meat

Wool

200

400

100

500

Absolute AdvantageCan make more with available resources



Meat Meat

Wool

200

400

100

500

200 Wool = 400 Meat therefore1 Wool = 2 Meat (opportunity cost)

400 Meat = 200 Wool therefore1 Meat = 0.5 Wool (opportunity cost)

100 Wool = 500 Meat therefore1 Wool = 5 Meat (opportunity cost)

500 Meat = 100 Wool therefore1 Meat = 0.2 Wool (opportunity cost)



Meat Meat

Wool

200

400

100

500

1 Wool = 2 Meat1 Meat = 0.5 Wool

1 Wool = 5 Meat 1 Meat = 0.2 Wool

Should specialise in Wool because

better at it

Should specialise in Meat because

better at it!

Should trade



Meat

200

400

100

200

Meat

Wool

100

500

50

250



Meat

200

400

100

200

Meat

Wool

100

500

50

250

Export 100Still consume 100

Export 250Still consume 250

Import 250consume 50 more

Import 100consume 50 more



Meat Meat

Wool

200

400

100

500

10050

200 250

Trade

Review the idea of Comparative Advantage

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

Comparative Advantage

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 fishCOUNTRY MILK

(units)FISH (units)

Ratio of milk output to fish output

Ratio of fish output to milk output

NEW ZEALAND

15 10

SCOTLAND 4 8

The possible gains from trade

Current output/consumption by sharing resources between milk and fishCOUNTRY MILK FISHNEW ZEALAND

15 10

SCOTLAND 4 8


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


NZ can export8 units of milkTo Scotland

Scotland can export8 units of fishTo 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

Exam Question 2007

Exam Question 2007Model answer

Exam Question 2007

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

100 200 300 400 500 600

2

6

8

4

10

100 200 300 400 500 600

2

6

8

4

10

Quantity (000 tonnes)

Quantity (000 tonnes)

Price

(NZ$)

Price

(NZ$)

Sus

Dnz

Dnz

Snz

The New Zealand

beef market

The American

beef market

Demand and Supply Model

100 200 300 400 500 600

2

6

8

4

10

100 200 300 400 500 600

2

6

8

4

10

Quantity (000 tonnes) Quantity (000 tonnes)

Price

(NZ$)

Price

(NZ$)

Sus

Dnz

Dnz

Snz

The New Zealand beef market The American beef market

New Zealand production

New Zealand domestic consumption

Surplus - Exports

American Consumption

American domestic production

Shortage - Imports

REVIEWDemand and Supply Model

•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 using the D & S model

Exam Question

Exam Question

Plus hand outs from Economic IssuesOn oyster market and rugby jerseys

Quantity (000 tonnes) Quantity (000 tonnes)

Sus

Dus

Dnz

Snz

The New Zealand beef market The American beef market

Decrease in overseas demand

XX¹

M

M¹

Pw

Pw¹

Pw

Pw¹

Objectives31st 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 groupsEXPERTS LEARN and TEACH

Question 1 Question 2

Question 3 Question 4

No. off 1 - 410 – 15 Mins

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?

• Therefore NZ focus on agricultureLower Costs

Quantity Quantity

Snz

DnzDme

Sme

Middle East oil market New Zealand oil market

Factor Endowments

XM

PwPw

Pw¹

X¹

Pw¹

M¹

Snz1

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

Quantity

Dme

Sme

Use notebook softwareOn the board

Trade Agreements

http://www.chinafta.govt.nz/

http://www.mfat.govt.nz/Trade-and-Economic-Relations/1-Market-access/index.php

International trade lessons

Business

Transcript of International trade lessons