Economics Vocab IA1

Comparative Advantage

the ability to produce a good or service at a lower opportunity cost than another nation

Competitive Advantage (of a nation)

trade advantage obtained by a nation through the capacity of its industries to innovate and upgrade

Absolute advantage

the ability of a nation to produce commodities more efficiently than another nation

Aggregate demand (AD)

the level of expenditure on total production or output that is planned at various price levels

Aggregate supply (AS)

the level of total production or output that producers plan to supply at various price levels

Balance of trade

the difference between the value of exports and imports

Bilateral trade agreement

a trade agreement negotiated between two countries

Circular flow of income model

illustrates how income flows from one sector of the economy to another and explains how changes in the levels of national income and output occur

Currency

the basic monetary unit of a country

Exchange rate

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

External sector (aka foreign/overseas sector)

fifth sector of the circular flow of income model that identifies economic influences and activities external to the domestic economy

Open economy

available to trade with other nations

Global economy

the interconnected worldwide economic activities that take place between multiple countries, and is characterised by globalisation and international trade, finance and investment

Internal balance

a state of the economy in which there is full employment and acceptable levels of inflation

Capital

the factor of production comprising the stock of human

Economic problem

the issue of deciding how to satisfy unlimited wants with limited resources

Factor endowment

the supply of factors of production (ie. land, labor, capital, and entrepreneurship) that a country possesses and can exploit for manufacturing

Gross domestic product (GDP)

the total value of final goods and services produced within an economy in a specific period of time

Human capital

the knowledge, experience and skills of individuals, in which nations must invest if they are to advance

Profit motive

the seeking of profit, which is the basic stimulus for economic activity in a free

Relative scarcity

limited supply of a resource compared to demand

Standard of living

a measure of lifestyle standards based on measurable indicators such as income, education and health

Widening gap

increasing economic difference between poor nations and economically advanced nations

Capital

intensive production

Labour

intensive production

Economies of scale

cost efficiencies that are derived by producing large volume of standardised products

Productivity

measuring of output per unit of input to gauge the efficiency of production

Globalisation

the growing integration of national economies to form a single interdependent global economy

Globalisation of markets

the convergence of tastes and preferences across the international markets and the global acceptance of standardised products

Host country

a foreign (non

Parent country

the country where the MNC's headquarter is based and from where major decisions are made

Supply chain

the system of organisations, people, activities, information and resources involved in moving a product or service from supplier to consumer

Competitive advantage (of a firm)

anything that gives a business an edge over its competitors, helping it attract more customers and grow its market share

Double taxation

the taxation of an international firm's profit in the country where it is earned and again in its home country where it is distributed

Emerging market (or transitional) economies

developing economies that are transforming their economies to a capitalist market system

Export

orientation strategies

Import

substitution strategies

Intellectual property

a category of property/assets that includes intangible creations of the human intellect including artistic work, technology and knowledge

Operational restrictions

political limitations that are placed on the way a foreign firm operates (e.g who it employs, the price to charge)

Transfer price

the price charged for goods by one subsidiary of a multinational corporation to another subsidiary of the same company in another country

Transparency

laws and regulations that are clearly spelt

World Trade Organization (WTO)

a multilateral organisation aimed at liberalising world trade and establish a dispute settlement procedure

Exchange rate

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

Currency/exchange rate appreciation

an increase in the value of a currency relative to other currencies under a floating exchange regime

Currency/exchange rate depreciation

a decrease in the value of a currency relative to other currencies under a floating exchange regime

Currency revaluation

a deliberate upward adjustment to the value of a country's currency relative to another currency, a group of currencies or standard under a fixed exchange rate

Currency devaluation

a deliberate downward adjustment to the value of a country's currency relative to another currency, a group of currencies or standard under a fixed exchange rate

Fixed exchange rate

the value of a currency that is determined by the government fixing it to the value of another currency at a certain level, and guaranteeing to maintain that level

Floating exchange rate

the value of a currency determined by the forces of supply and demand in the foreign exchange market.

Managed exchange rate

a policy in between a fixed and floating system, where the government intervenes sometimes to keep a currency within defined value bounds

Trade

weighted index

Basket of currencies

a method for determining exchange rates that uses a selection (basket) of currencies instead of fixing the value of one currency to one other currency, thereby minimising the effects of any fluctuations

Government Bond

a type of debt