QCAA Economics cheat sheet

Comparative advantage: a country gains from specialisation when its opportunity cost of producing a good is lower than its trading partner's; absolute advantage (producing more with the same inputs) does not by itself determine the gains from trade.

Opportunity cost formula: OC of good X = units of good Y forgone ÷ units of good X gained; the country with the lower OC in X exports X and imports Y.

Terms of trade = (index of export prices ÷ index of import prices) × 100; a rise means each unit of exports buys more imports (improved living standards, ceteris paribus).

Balance of trade = exports of goods and services − imports of goods and services; the current account also includes net primary income (factor income) and net secondary income (transfers).

A depreciation of the domestic currency raises import prices in domestic currency and lowers export prices in foreign currency, improving international competitiveness but worsening the terms of trade.

Protection tools: tariffs (tax on imports), quotas (quantity limit), subsidies to domestic producers, local-content rules and technical/health standards; each raises domestic price and reduces import volume.

Dumping = selling exports below the cost of production or below the home-market price; anti-dumping duties are a permitted WTO-consistent response.

Globalisation indicators: trade as a share of GDP, foreign direct investment flows, migration, and growth of multinational corporations; drivers include lower transport/communication costs and trade liberalisation.

AD = C + I + G + (X − M); equilibrium national income occurs where aggregate demand equals aggregate supply and saving equals investment in a simple model.

The multiplier k = 1 ÷ (1 − MPC) = 1 ÷ MPS; a change in autonomous spending changes equilibrium income by ΔY = k × ΔA.

Fiscal stance: expansionary = higher G or lower T (raises AD, budget deficit); contractionary = lower G or higher T (reduces AD, budget surplus); automatic stabilisers dampen the cycle without discretionary action.

Monetary policy transmission: change the cash rate → change market interest rates → change C and I → change AD, output and the price level, with a lag of several quarters.

Inflation targets: a credible target anchors expectations; central banks weigh the trade-off between lowering inflation (output cost) and supporting growth (inflation risk).

Unemployment types: cyclical (demand-deficient), structural (skills/geography mismatch), frictional (job search), seasonal; only cyclical unemployment responds strongly to demand policy.

Policy conflicts: reducing inflation via contractionary policy raises unemployment; expansionary policy may worsen the current account via higher import spending; supply-side policy improves both over the longer term.

Cost-benefit and efficiency criteria for evaluating policy: allocative, productive and dynamic efficiency; equity; sustainability; and time lags in recognition, decision and effect.