IB Economics HL - International Economics

absolute advantage

Where a country is able to produce more output than other countries using the same input of factors of production.

anti-dumping

Legislation to protect an economy against the importing of a good at a price below its unit cost of production.

appreciation

An increase in the value of a country's currency in a floating exchange rate system.

balance of payments

The accounting record of all transactions (debits and credits) between the households, firms and government of one country, and the rest of the world.

barriers to trade

Anything which prevents free trade between two countries, e.g. tariffs, quotas.

common market

A customs union with common policies on product regulation, and free movement of goods, services, capital and labour.

comparative advantage

Where a country is able to produce a good at a lower opportunity cost of resources than another country.

current account

A measure of the international flow of funds from trade in goods and services, plus net investment income flows (profit, interest and dividends) and net transfers of money (foreign aid, grants and remittances).

current account deficit

Where revenue from the exports of goods and services and income flows is less than the expenditure on the import of goods and services and income flows in a given year.

current account surplus

Where the revenue from the export of goods and services and income flows is greater than the expenditure on the import of goods and services and income flows in a given year.

customs union

An agreement made between countries, where the countries agree to work towards free trade among themselves and they also agree to adopt common external barriers against any country outside the union.

depreciation

A decrease in the value of a country's currency in a floating exchange rate system.

devaluation

A decrease in the value of a country's currency in a fixed exchange rate system.

dumping

The selling of a good in another country at a price below its unit cost of production.

exchange rate

The value of one currency expressed in terms of another currency.

expenditure-reducing policies

Policies implemented by the government that attempt to reduce overall expenditure in the economy, in order to reduce expenditure on imports.

expenditure-switching policies

Policies implemented by the government that attempt to switch the expenditure of domestic consumers away from imports towards domestically produced goods and services.

export promotion

Strategies to encourage economic growth through increased international trade and the furtherance of export industries.

financial account

A measure of the net change in foreign ownership of domestic financial assets, including foreign direct investment, portfolio investment and changes in foreign reserves.

fixed exchange rate

An exchange rate regime where the value of a currency is pegged to the value of another currency, (or to the average value of a selection of currencies, or to the value of some other commodity, e.g. gold).

floating exchange rate

An exchange rate regime where the value of a currency is allowed to be determined solely by the demand for, and supply of, the currency on the foreign exchange market.

free trade area

An agreement made between countries, where the countries agree to work towards free trade among themselves, but are able to trade with countries outside the free trade area in whatever way they wish.

import substitution

Strategies to encourage the domestic production of goods in order to reduce imports and stimulate local producers. Such policies rely on the use of protectionism.

IMF

An organisation working to foster global monetary cooperation, secure financial stability, facilitate international trade and reduce poverty.

international reserves

Foreign currencies held by governments (central banks) as a result of international trade. Reserves may be held so that the government may maintain a desired exchange rate for the country's currencies.

J-curve

Suggests that in the short term, a fall in the value of the currency will lead to a worsening of the current account deficit, before things improve in the long term.

Marshall-Lerner condition

States that a depreciation, or devaluation, of a currency will only lead to an improvement in the current account balance if the elasticity of demand for exports plus the elasticity of demand for imports is greater than one.

monetary union

Where two or more countries share the same currency and have a common central bank.

portfolio investment

The purchase of financial investments such as shares and bonds in order to gain a financial return in the form of interest or dividends.

preferential trade agreement

Where a country agrees to give favoured access, e.g. reduced tariffs, to certain products from one or more trading partners.

quota

Import barriers that set limits on the quantity or value of imports that may be imported into a country.

retaliatory tariff

Where a country responds to the imposition of a tariff by a trading partner by imposing a tariff on that country's products.

revaluation

An increase in the value of a country's currency in a fixed exchange rate system.

speculation

Where foreign currency traders make a decision to buy or sell a currency based on their expectations of future exchange rate movements.

subsidy

An amount of money paid by the government to a firm, per unit of output, to encourage output and to give the firm an advantage over foreign competition.

tariff

A duty (tax) that is placed upon imports to protect domestic industries from foreign competition.

terms of trade

An index that shows the value of a country's average export prices relative to their average import prices.

trade bloc

Any association of one or more countries where an agreement is made to reduce trade barriers.

trade creation

Occurs when the entry of a country into a customs union leads to the production of a good moving from a high-cost producer to a low-cost producer.

trade diversion

Occurs when the entry of a country into a customs union leads to the production of a good moving from a low-cost producer outside the union to a high-cost producer inside the union.

trade

Involves the exchange of goods or services between two countries.

WTO

An international body that sets the rules for global trading and resolves disputes between its member countries. It also hosts negotiations concerning the reduction of trade barriers between its member nations.