Economics IA1 2025

Do what is right. Not what is easy

Open economy

Any nation that trades with other nations.

External (foreign) sector

That sector of the circular flow model that identifies economic influences external to the domestic economy.

Exchange rates

The value of the currency of a nation expressed in terms of the currency of another nation.

Commodity prices

The prices of raw materials and primary products such as iron ore

Tariffs

Taxes that a government places on imported goods and services, paid by the importer. They make imports more expensive, which protects local producers by making their goods relatively cheaper in comparison.

External stability

An economy's ability to meet its international financial obligations without causing problems for the rest of the economy. It means keeping the balance of payments, exchange rates and foreign debt at sustainable levels.

Internal balance

A state of the domestic economy in which there is full employment and acceptable levels of inflation.

Factor endowment

The mix of resources a country has for economic activity, such as land, minerals, labour, or capital.

Economies of scale

Cost efficiencies that are derived by producing a large volume of standardised products.

Prima facie

Latin term meaning 'on the face of it' it refers to something that appears to be true on the first look at the evidence.

Trade deficit

When the value of a country's imports of goods and services is greater than the value of its exports.

Intertemporal efficiency

Producing goods and services while ensuring resources will be available for future generations.

Infant industries

A new or emerging industry in a country that is not yet strong enough to compete with established foreign producers.

Imports

Goods that enter a nation from overseas.

Exports

Goods that a nation sells to foreign nations.

Multinational corporation (MNC)

An enterprise operating in several countries but managed from one home country.

Intra-company trade

When trade occurs between affiliates or subsidiaries of the one organisation, often using transfer pricing.

Transfer pricing

The price set for goods, services, or intellectual property when they are traded between branches or subsidiaries of the same company.

Composition of trade

What we trade.

Direction of trade

Where and with whom we trade.

Trade Theories

Trade theories attempt to explain how trading partners can benefit the most from the international exchange of goods and services to increase overall economic growth and output.

Absolute Advantage

The ability of a nation to produce commodities more efficiently than another nation. Another way of saying this is that one nation produces at a lower direct resource cost than another.

Direct Resource Cost

Fewer inputs like labour hours, raw materials, land or capital to produce one unit of output compared with another country.

Comparative Advantage

The ability of a nation to produce a product at a lower opportunity cost of production than another nation.

Opportunity Cost

The value of the next best alternative foregone when a choice or decision is made.

Competitive Advantage

A nation's competitiveness depends on the ability of its industries to innovate, upgrade, and adapt.

Factor Conditions

Nations can improve factors e.g. by investing in infrastructure and specialised training of the workforce.

Firm strategy, structure, and rivalry…

Conditions governing company creation, management and domestic rivalry need to be disciplined, flexible, and conducive to innovation.

Demand Conditions

Nations can benefit from having a clear view of consumer demand by developing a domestic market to anticipate international market needs.

Related and Supporting Industries

A nation can gain advantage by having efficient and internationally competitive supplier industries

Fixed Exchange Rates

A regime applied by a government or central bank which ties the country’s currency official exchange rate to another country’s currency or the price of gold.

Managed Currency

One whose price and exchange rate are influenced by some intervention from a central bank.

Floating Exchange Rate

A regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies.

In fixed exchange rates, if the exchange rate is increased, this is a…

Revaluation

In fixed exchange rates, if the exchange rate is decreased, this is a…

Devaluation

In floating exchange rates, if the exchange rate increases, this is an…

Appreciation

In floating exchange rates, if the exchange rate decreases, this is a…

Depreciation

Quota

Limit on how many items can be exported.

Subsidies

Support from the government to industry to reduce costs.

Embargo

Total ban on a good or service.