Australia conducts its trade in the free trade format. Free trade is a situation where government imposes no artificial barriers to trade that restricts the free exchange of goods and services between countries with the aim of shielding domestic producers from foreign competitors.' Reasons for free trade are based on the economic concept of comparative advantage, which is the economic principle that nations should specialize in the areas of production in which they have the lowest opportunity cost and trade with other nations, so as to maximize both nations' standards of living. Trade allows Australia to obtain goods and services that they don't produce efficiently for their population, and also allows Australia to meet the domestic demand for goods and services. Conversely, free trade will allow Australian producers to specialize in the production of goods and services which are most efficiently produced in Australia. This will result in a better allocation of resources, and increased levels of production within Australia. This increased efficiency in production will occur due to the goods and services being produced having a comparative advantage for their countries. Trade also leads to greater levels of specialization which in turn will result in economies of scale, which will lower average costs of production and increase efficiency and productivity even further.
Part 2 - Australia's Main Exports .
Australia's five most exported goods all fall under the production which has resulted from the recent mining boom, particularly in Western Australia. In particular the exporting of iron ores and concentrates has dramatically increased from 2010, which was 49,376 million dollars, to the enormous 2011 figure of 64,189 million dollars. The current mining boom in Australia is being driven by demand for mineral resources from Asia and in particular China. It is interesting to note that Australia's comparative advantage in the mining sector is predominantly the existence of the resource together with the infrastructure to support its exportation.