The instructor should demonstrate correctly then the student follow. The first turn onto crosswind is done at 500' AGL but the turn onto downwind is to set up the downwind leg at the correct distance from the runway, not an altitude. We often get "mega circuits" here at Jandakot and instructors just letting them wander to the edge of the control zone. It's very annoying when you have to follow an aircraft that is taking the scenic route.