Trade Liberalisation — Flashcards & Quiz

Q1: What is trade liberalisation and how does it increase AS?

Trade liberalisation reduces barriers to trade through tariff cuts, quota reductions, and FTAs. It increases AS by: forcing efficiency gains through competition, providing access to cheaper inputs, opening export markets for specialisation, and facilitating technology transfer.

Q2: What are the potential costs of trade liberalisation?

Short-run: structural unemployment in protected industries, industry decline, regional impacts, adjustment costs. Long-run concern: over-dependence on narrow export base (e.g. mining).

Q3: What is comparative advantage and how does it relate to trade liberalisation?

Comparative advantage is the ability to produce a good at a lower opportunity cost than another country. Trade liberalisation allows specialisation based on comparative advantage, increasing total output and efficiency, shifting AS rightward.

Q1: Australia's average tariff rate has increased significantly since the 1970s.

Answer: FALSE

Australia's tariff rate has DECREASED significantly — from over 35% in the 1970s to under 5% today.

Q2: Trade liberalisation may cause short-run structural unemployment in previously protected industries.

Answer: TRUE

Reduced tariffs increase import competition. Firms that cannot compete close, causing structural unemployment.

Q3: Comparative advantage means a country can produce a good at a lower opportunity cost than another country.

Answer: TRUE

Comparative advantage is defined by lower opportunity cost, not absolute production capability.