90795 Describe international trade and its causes and effects using economic models

90795 Trade (a) Classify the following items by placing them in the most appropriate column in the table. (b) State New Zealand’s largest trading partner by dollar value. AME 4/6 correct AME (b) correct and 2 from (c) Australia (c) State three other countries that are included in both our top 5 USA, China, Japan NZ Mainly ExportsNZ Mainly Imports ApplesAircraft beefClothing milk powderMotor vehicles

(a) Which country has the absolute advantage in the production of Vans and Milk Powder? (b) Complete these sentences: Jeland Jeland – milk powder Moland – vans (c) Explain your answers to question (b) referring to data shown on the graphs. Jeland can produce milk powder at a lower opportunity cost (0.1 van) than can Moland (0.2 van) Moland can produce vans at a lower opportunity cost (5 mp) than can Jeland (10mp) AcMcE correct both correct AcMcE One country explained including mention of opportunity cost. Both countries explained including mention of opportunity cost and a calculation Trade

(d) Assume each country was to specialise in the production of the good they have a comparative advantage in. Show the new consumption point on EACH country’s graph if the trade deal between the countries is 3000 tonnes of milk powder for 400 vans. Fully label any exports X and imports M on each graph Trade XM MX AeMeE One graph correct with exports and imports correctly labelled. Both graphs correct with exports and imports correctly labelled.

(e) Explain why this trading combination is beneficial for both countries. AeMeE Outside PPC so now better off. This trading combination places both countries outside their PPC. Trade has allowed them to consume a previously unobtainable output given a constant state of resources and technology Trade AME M C from (c) M E from (d) and M E from (e).

(a) Show the effect of this increase in the world price on the graph below AeMeE Price increases to $7.30. Achieved plus Q D, Q S, X correctly labelled. (b) Label (i)the new quantity demanded by NZ consumers as Q D (ii)the new quantity produced by NZ producers as Q S (iii)the new quantity exported as X Trade P($) Milk Solids S NZ D NZ D World Quantity DW’DW’ QDQD QSQS X

(c) Explain the effect of the increased world price on New Zealand Producers and New Zealand Consumers. Producers Increased production and increased revenue/profit and flow on effect eg hire more workers. Consumers Less milk solids available for NZ consumers and they pay a higher price. AeMeE 3 points5 points explained Trade

(d) Explain the impact of this increased payout to Dairy farmers on Inflation and Economic Growth. AeMeE Effect on inflation stated. Effect on inflation explained. AeMeE Effect on growth stated Effect on growth explained Inflation Increased income for dairy producers leads to increased investment (I) and/or consumption (C) which increases AD in the economy which leads to increased price level (inflation). (Note: do not accept increased price of milk solids is inflation, this is a price rise in a single market) Economic Growth Increased export income leads to increased AD. NZ firms increase their output to meet this demand leading to economic growth Trade

(e) Explain the impact you think record dairy prices will have on other types of farming, such as sheep farming, in New Zealand. Will be decrease in production by other types of farming as resources are switched to dairy where they are relatively more profitable. AMeE Valid explanation Trade

(a) Place ONE tick in each row to indicate how each transaction would be classified in the New Zealand Balance of Payments. AME Three correct (b) Which column is the main cause of New Zealand running a large Current Account Deficit? i.Goods ii.Income iii.Capital iv.Services v.Financial Balance on Income (c) Explain your answer to Question (b). There is proportionally more foreign investment in NZ than NZ investment abroad so there will be more income from investments leaving NZ than entering Trade AcME Correct AMcE Correct explanation

(d) Explain what a large Current Account deficit means for the Financial Account. AeMeE States a financial account surplus Explains why there is a financial account surplus. There will be a Financial account surplus as NZ must borrow or use savings (Change in reserves) to fund the deficit Trade AME 1M C & 2M E from 3(d), 3(e), 4(c), 4(d)

(a) Explain why Fisher and Paykel would want to move operations to Mexico given the effect of (i) a high exchange rate and (ii) high freight and labour costs. AMeE Valid explanation High exchange rate Leads to a fall in export earnings as revenue from sales overseas translates into fewer $NZ. By moving to Mexico F&P will not suffer these currency losses. High Freight and Labour Costs Mexico is closer to the American market so freight costs will be lower. Mexico is a low wage economy so the wage bill for F&P will be lower Trade AMeE Valid explanation

JUDGEMENT Achievement Achievement with Merit Achievement with Excellence 1  A C 1  A E 6 other A or better 1  M C 1  M E 1 other M 7 other A or better 1  M C 1  M E 2 other M C or M E 1  E 7 other A or better A C and M C refers to causes. A E and M E refers to effects Describe the concept of supply