International Economics Flashcards
Define “absolute advantage”.
Absolute advantage is the ability of a country, business, individual or other entity to produce a particular good or service more efficiently (with fewer resources) than another entity.
Define “comparative advantage”.
Comparative advantage is the ability of a country, business, individual or other entity to produce a particular good or service at a lower opportunity cost than the opportunity cost of producing the good or service by another entity.
Identify three major reasons for international economic activity.
To develop new markets for the sale of goods and services;
To obtain commodities not otherwise available domestically;
To obtain goods and services at lower costs than available domestically.
Identify some of the reasons for comparative advantage between countries
Differences in availability of economic resources, including:
Natural resources;
Labor;
Technology.
What are the four broad national attributes (factors) identified by Michael Porter as promoting or impeding the creation of competitive advantage by a country?
Porter’s four factors are:
Factor endowments - the factors of production;
Demand conditions - nature of domestic demand;
Relating and supporting industries - the international competitiveness of related industries;
Firm strategy, structure and rivalry - how companies are created, organized, managed and compete.
Define “direct (currency) exchange rate”.
Currency exchange rate expressed as the domestic price of one unit of a foreign currency (e.g., U.S. dollar cost of one Euro).
Define “indirect (currency) exchange rate”.
Currency exchange rate expressed as the foreign currency price of one unit of the domestic currency (e.g., Euro cost of one U.S. dollar).
Define “currency exchange rate”.
The price of one unit of a country’s currency expressed in units of another country’s currency; the rate at which two currencies will be exchanged.
