Chapter 6 - International economic issues

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Absolute advantage

• The ability of a country to produce a good with fewer resources than another country.

Comparative advantage

• The ability of a country to produce a good with a lower opportunity cost than another country.

Terms of trade

• A measure of the ratio of export prices & import prices.

Trading possibilities curve

• A diagram showing the effects of a country’s specialization and trading.

Protectionism

• Protecting domestic industries from foreign industries.

Tarif

• Tax imposed on imported goods.

• money go to importing government.

  • USA slap tarif on China, USA get tarif revenue.

Quota

• A limit to imported goods.

Export subsidy

• Subsidy given to exporter to reduce Price of exports and be more price competitive.

Embargoes

• A complete ban on imports.

Excessive administrative burdens

• Excessive red tape imposed on importers to discourage imports.

Voluntary export restraints

• An agreed limit implemented on the imports reached of a supplying country.

Exchange controls

• Restrictions on the purchases of foreign currency.

Infant industries

• New industries that have a low output & high average cost.

Sunset industries

• Industries that has lost its competitive advantage.

Dumping

• Selling a product below its cost price.

Balance of payments

• A series of accounts recording all the financial transactions between a country’s residents and the rest of the world.

Current Account

• A record of the trade in goods, trade in services, investment income & current transfer.

Investment income (Primary income)

• A component that includes wages paid to an individual for their labour and interest, profit & dividends earned on investment.

Current transfer (Secondary income)

• Payments made & received for which there is no corresponding exchange of goods & services.

Balance in current account

• Debit item on current account = Credit item

Imbalance in current account

• Debit items on current a/c ≠ Credit items

Current account deficit

• The value of debit items on current account > value of Credit items

Current account surplus

• The value of Credit items on current a/c > value of Debit items

Trade deficit

• A country’s value of import goods and services more than it’s value of export goods and services.

Trade surplus

• A country’s value of import goods and services less than it’s value of export goods and services.

Balance of trade of goods

• Value of export goods - Value of import goods

Balance of trade in services

• Value of export services - Value of import services.

Balance of trade in services

• Balance of export of services - Balance of import of services

Balance of trade in goods & services

• Balance of trade in goods + Balance of trade in services

Current account balance

Sum of

• Balance of trade in goods & services

• Balance of primary income

• Balance of secondary income