the global economy (4.1)

international trade

the exchange of capital, goods and services across nation states

involves the sale of exports and imports

exports

goods and services sold overseas to buyers

imports

foreign goods and services bought by domestic households and firms

factor endowment

quantity & quality of factors of production available in the country

such as natural resources and human capital

benefits of international trade

• increased competition

• lower prices

• greater choices

• acquisition of resources

• more foreign exchange earnings

• access to larger markets

• economies of scale

• more efficient resource allocation

• more efficient production

terms of trade

ratio of export prices to import prices

a measure that reflects changes in the average prices received for a basket of exports against those average prices paid for a basket of imports

ToT = (export price index / import price index) x 100