AS90795: Describe international trade and its causes and effects using economic models

1. 2.2 AS90795: Describe international trade and its causes and effects using economic models

2. 2.2 Trade:

3. Market for an Imported Good Price ($) SNZ PNZ Pworld Sworld DNZ Q QP QNZ QC imports 2.2 Trade: Demand and Supply: determination of domestic and international prices quantities imported or exported exchange rates

4. 2.2 Trade: • Bilateral Trade (between two countries): • before trade each country has their own P/Q equilibrium. • after trade a mutual price (Ptrade) is settled on that allows a quantity of exports to be produced in one country and sold in the other. Domestic Market Overseas Market Price ($) Price ($) SO/seas SNZ Pe Ptrade Ptrade PNZ DNZ DO/seas Q Q QC QNZ Qt Ql Qe Qt exports imports

5. Market the $NZ P$NZ ($US) S$NZ P D$NZ Q$NZ QNZ 2.2 Trade: Exchange Rates: determining the value of the currency in relation to other currencies

6. Leftland Rightland Cows Cows 20 15 X M Cakes Cakes 10 20 M X 2.2 Trade: Production Possibility Model: examining the reasons for international trade by comparing the opportunity costs of production. Absolute Advantage: who produces the greatest quantity of each product? Comparative Advantage: who produces for the lowest [opportunity] cost? Each country specialises in what they are best at producing and trades their surplus for what they do not produce.