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International Trade

Terms

Summary

Trade Basics

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)

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