International Trade
Terms
Absolute Advantage
-
When a producer can create a given amount of output with
the smallest amount of inputs.
Budget Deficit
-
When the government spends more money than it receives.
Capital
-
Money, machinery, and education put toward a business
to increase its productivity.
Comparative Advantage
-
When a producer has a lower opportunity cost of production
for an item than another producer's.
Consumption
-
Goods and services purchased by consumers.
Cost of living
-
The relative amount of money needed to maintain
a given lifestyle.
Exchange Rates
-
Numbers that tell how much foreign product can be purchased
with similar domestic product.
Exports
-
Goods sent to another country for sale.
Free Trade
-
Trade with which the government does not interfere.
Goods
-
Products that consumers, manufacturers, and governments exchange.
Imports
-
Goods produced in a foreign country and consumed
in a domestic country.
Income
-
Money that enters a country or household.
Investment
-
Money spent to improve a company's growth and productivity.
Net Exports
-
The difference between exports and imports.
Net Foreign Investment
-
The total amount of investment in a country that results
from trade deficits. Net foreign investment always equals
net exports.
Nominal Exchange Rates
-
The amount of foreign currency that exchangeable for
domestic currency.
Nominal Output
-
The amount of output valued in currency dollars.
Opportunity Cost
-
What is given up in pursuing one option over another.
Output
-
Goods and services produced.
Protectionist Policies
-
Governmental policies that serve to help developing
domestic industries.
Quota
-
When a government limits the amount of a given good that can
be imported. Imposing quotas is a protectionist policy.
Real Exchange Rates
-
Numbers that describe the relative real value of foreign
and domestic goods.
Subsidy
-
Grants paid by the government to producers to help them
develop. Subsidizing is a protectionist policy.
Tariff
-
Fees charged by the government on imported goods to help
raise the price and decrease the quantity sold. Use of
tariffs is a protectionist policy.
Trade
-
When goods from one producer are exchanged for goods from
another producer. In this case, goods can be very broadly
interpreted.
Trade Balance
-
Exports minus imports.
Trade Deficit
-
A trade deficit occurs when a country imports more than it exports.
Trade Surplus
-
A trade surplus occurs when a country exports more than it imports.
Formulae
| Output = income Y = C + I + G + NX | Y = C + I + G + NX |
| Net Exports | Net Exports = exports - imports |
| Real Exchange Rate | Real exchange rate = ((nominal exchange rate)(domestic price)) /(foreign price) |
| Nominal Exchange Rate | Nominal exchange rate = (price of foreign currency) / (price of domestic currency) |
