Question 1
EXPLAIN THE THEORY OF COMPARATIVE ADVANTAGE. WHAT ARE ITS IMPLICATIONS FOR AUSTRALIA?
The theory of Comparative Advantage (CA) can be explained in two ways:
First, the typical definition states that CA is “the relative or absolute advantage that one country has over the other”. It is Country A’s ability to produce a good/service at a lower opportunity cost than Country B. For example, which will be explained further below, Australia’s ability to produce Iron Ore (Along with other resources and commodities) and trade with China’s consumer goods/manufacturing – which would cost Australia more money to produce internally. The theory also states that a country that has CA will increase their countries economic welfare. CA can be split …show more content…
I.e. Exporting costs incurred may be greater than the CA itself. This impact may occur in relation to the exchange rates between Australia and the country of trade.
• Finally, there is always a potential for government disruption when trading. Sanctions or restrictions may be implemented to prevent further trade. If we look at Indonesia, for example, Australia benefitted greatly from the exportation of cattle. There is some who may say that after Australia reduced foreign investment to Indonesia, the country “returned fire” by decreasing the import of cattle. To summarize this point, political relationships may impact the CA the country may currently have if trade changes are made based on other government regulations or new policy implementation.
• Australia needs to be equipped (human resource) to compete globally. Instead of solely looking at commodities and resources, Australia needs to ensure they shift some focus into how their skills/capabilities can compete in a global market. This idea includes Australian businesses, which need evaluate their competitiveness in the global …show more content…
We know that in a recessive climate, a country’s imports will be decreased due to a decrease in household incomes. This will affect Australia’s exports; in addition to increase the price of the companies imports to/from Europe. With a decrease in exports, means a decrease in revenues that the country is making. As a result, Australia will have a need for an implementation of policies to help stimulate the economy in the short-term while awaiting Europe’s climb out of recession. This
EXPLAIN THE THEORY OF COMPARATIVE ADVANTAGE. WHAT ARE ITS IMPLICATIONS FOR AUSTRALIA?
The theory of Comparative Advantage (CA) can be explained in two ways:
First, the typical definition states that CA is “the relative or absolute advantage that one country has over the other”. It is Country A’s ability to produce a good/service at a lower opportunity cost than Country B. For example, which will be explained further below, Australia’s ability to produce Iron Ore (Along with other resources and commodities) and trade with China’s consumer goods/manufacturing – which would cost Australia more money to produce internally. The theory also states that a country that has CA will increase their countries economic welfare. CA can be split …show more content…
I.e. Exporting costs incurred may be greater than the CA itself. This impact may occur in relation to the exchange rates between Australia and the country of trade.
• Finally, there is always a potential for government disruption when trading. Sanctions or restrictions may be implemented to prevent further trade. If we look at Indonesia, for example, Australia benefitted greatly from the exportation of cattle. There is some who may say that after Australia reduced foreign investment to Indonesia, the country “returned fire” by decreasing the import of cattle. To summarize this point, political relationships may impact the CA the country may currently have if trade changes are made based on other government regulations or new policy implementation.
• Australia needs to be equipped (human resource) to compete globally. Instead of solely looking at commodities and resources, Australia needs to ensure they shift some focus into how their skills/capabilities can compete in a global market. This idea includes Australian businesses, which need evaluate their competitiveness in the global …show more content…
We know that in a recessive climate, a country’s imports will be decreased due to a decrease in household incomes. This will affect Australia’s exports; in addition to increase the price of the companies imports to/from Europe. With a decrease in exports, means a decrease in revenues that the country is making. As a result, Australia will have a need for an implementation of policies to help stimulate the economy in the short-term while awaiting Europe’s climb out of recession. This