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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. NZ Mainly Exports NZ Mainly Imports Apples Aircraft beef Clothing milk powder Motor vehicles A M E 4/6 correct (b) State New Zealand’s largest trading partner by dollar value. Australia (c) State three other countries that are included in both our top 5 USA, China, Japan A (b) correct and 2 from (c) M E 90795 Trade (a) Which country has the absolute advantage in the production of Vans and Milk Powder? Ac Mc E Jeland correct (b) Complete these sentences: Jeland – milk powder Moland – vans both correct (c) Explain your answers to question (b) referring to data shown on the graphs. Ac Mc E 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) One country explained including mention of opportunity cost. Both countries explained including mention of opportunity cost and a calculation. 90795 Trade Ae Me E (d) Assume each country was to specialise in the production of the good One graph Both graphs they have a comparative advantage in. Show the new consumption correct with correct with point on EACH country’s graph if the tradeexports dealand between the countries exports and is 3000 tonnes of milk powder for 400 vans. Fully label imports any exports X imports correctly correctly and imports M on each graph. labelled. Moland 1000 1000 800 800 X Vans Vans Jeland labelled. 600 400 M 200 600 400 200 0 0 0 2000 4000 6000 8000 Milk Powder (tonnes) X 10000 0 2000 4000 6000 8000 M Milk Powder (tonnes) 10000 90795 Trade (e) Explain why this trading combination is beneficial for both countries. 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. Ae Me E Outside PPC so now better off. A M E MC from (c) ME from (d) and ME from (e). 90795 Trade (a) Show the effect of this increase in the world price on the graph below (b) Label (i) the new quantity demanded by NZ consumers as QD (ii) the new quantity produced by NZ producers as QS (iii) the new quantity exported as X. Milk Solids P($) Ae SNZ 10- X 98- DW’ 765- DWorld 4321DNZ 0 QD QS Quantity Price increases to $7.30. Me Achieved plus QD, QS, X correctly labelled. E 90795 Trade (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. Ae 3 points Me 5 points explained E 90795 Trade (d) Explain the impact of this increased payout to Dairy farmers on Inflation and Economic Growth. 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. Ae Effect on inflation stated. Ae Effect on growth stated Me E Effect on inflation explained. Me Effect on growth explained E 90795 Trade (e) Explain the impact you think record dairy prices will have on other types of farming, such as sheep farming, in New Zealand. A Will be decrease in production by other types of farming as resources are switched to dairy where they are relatively more profitable. Me Valid explanation E 90795 Trade (a) Place ONE tick in each row to indicate how each transaction would be classified in the New Zealand Balance of Payments. i. ii. iii. iv. v. Goods Income Capital Services Financial A M E Three correct (b) Which column is the main cause of New Zealand a large Ac running M Current Account Deficit? E Correct 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. A Mc Correct explanation E 90795 Trade (d) Explain what a large Current Account deficit means for the Financial Account. Ae There will be a Financial account surplus as NZ must borrow or use savings (Change in reserves) to fund the deficit. States a financial account surplus A Me E Explains why there is a financial account surplus. M E 1MC & 2ME from 3(d), 3(e), 4(c), 4(d) 90795 Trade (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. 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. A 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. A Me E Valid explanation Me Valid explanation E 90197 Describe the concept of supply JUDGEMENT Achievement 1 AC 1 AE 6 other A or better Achievement with Merit Achievement with Excellence 1 MC 1 ME 1 other M 7 other A or better 1 MC 1 ME 2 other MC or ME 1E 7 other A or better A C and M C refers to causes. A E and M E refers to effects.