1303AFE Lecture Notes - Lecture 11: Devaluation, Japanese Yen, Import Quota
Week 11 Economic for Decision Making lecture notes
International trade and exchange rate
International Trade
Australia in the global trade
• Global trade is enormous
• In 2014, global exports and imports were about $25 trillion, about 31% of global
production
• In 2024, total Australian exports were $239 billion, about 21% of the value of total
Australian production
• In 2014, total Australian imports were $331 billion, about 21% of the value of total
expenditure in Australia
What drives international trade?
• The fundamental force that generates trade between nations is comparative
advantage
• National comparative advantage is the ability of a nation to perform an activity or
produce a good or service at a lower opportunity cost than any other nation
o E.g. Japan-cars; Australia- coal
• Both countries can reap gains from trade by specializing in the production of the
good at which they have a comparative advantage and then trading
• Both countries gain from trading with each other based on their comparative
advantage
How international trade works? (demand supply analysis)
• Why Australia import cars?
o Figure shows that with no international trade,
▪ 1. Australian demand and supply determine that
▪ 2. The price in Australia is $24,000 a car
find more resources at oneclass.com
find more resources at oneclass.com
▪ 3. Australian firms produce 2 million cars a year and Australians buy 2
million cars a year
find more resources at oneclass.com
find more resources at oneclass.com
o The demand for and supply of cars in the world determine the world price at
$15,000 a car
o The world price is less than $24,000, so the rest of the world has a
comparative advantage in producing cars
o Figure shows that with international trade,
▪ 4. The price in Australia falls to $15,000 a car
o with international trade,
▪ 5. Australians increase the quantity they buy to 3 million cars a year
▪ 6. Australian car makers decrease the quantity they produce to 1
million cars a year
▪ 7. Australia imports 2 million cars a year
find more resources at oneclass.com
find more resources at oneclass.com