Unit 6 IGCSE economics

Absolute advantage

A country that can produce a good where it either produces the most goods per resource or produces the good using the least resources.

Comparative advantage

A country that can produce a good at a lower opportunity cost than its rival

Globalisation

The integration of markets in the global economy with fewer barriers to trade.

Foreign direct investment

Foreign capital injected into a domestic economy to purchase tools and services used to produce goods and services.

Host country

The foreign country the multinational is operating a business or investing in. For example, Starbucks invests around the world and each of those foreign countries is a host country.

Home country

The country where the multinational corporation is headquartered.

Foreign exchange rate

The value of one currency in terms of another, which is determined by the foreign exchange rate market.

Floating/flexible exchange rate system

A system where exchange rates are set by the market forces of demand and supply

Fixed exchange rate system

A system where the exchange rate remains fixed relative to other currencies

The equilibrium exchange rate

The rate where quantity demanded and quantity supplied is equal for one currency relative to another

Net exports

The annual difference between a country's exports and imports

When does a surplus occur?

When a country exports more than it imports

When does a deficit occur

When it imports more than it exports

Trade protection

Trade protection involves the use of trade barriers by governments to restrict international market access and competition.

Embargo

an official ban on trade or other commercial activity with a particular country.

open economy

an economy that interacts freely with other economies around the world

where are exports of goods/services recorded in the balance of payments of a country?

Exports of capital goods will be recorded as credits to the trade in goods section of the current account in the balance of payments.

Four components of current account

trade in goods, trade in services, primary income, and secondary income.

primary income

Earnings arising from the provision of the factors of production: labour, financial asset, land and natural resources

secondary income

redistribution of income through current transfers (government or charitable organizations)

how to reduce trade surplus

- lift any trade barriers

- no more subsidies on firms that export goods

- increase taxes on domestic products

- introduce floating exchange if it doesn't have one already