International Trade Flashcards
Definition of international trade
the exchange of commodities between countries of the world.
reasons for international trade
-Differences in natural resources are a reason for countries to trade.
-Differences in demand for certain goods encourage international trade. Some countries demand more of a good than others.
-Economies of a scale in production import on trade.
-Government policies such as taxes/subsidies promote international trade
Benefits of international trade
-Provides a greater range of products and services available to a country.
-Allows a country to develop export industries which provide employment.
-Encourages competition which enhances quality and lower prices.
Drawbacks/problems of international trade
Competition- local products compete with foreign products in the same market place.
Working products - in race for the lowest price, workers face adverse working conditions like poor lighting, poor bathroom facilities,lowered wages and reduced breaks.
Environmental damage-the use of pesticides, fertilizers have increased. Large corporate farms use pesticides to speed up and improve production.
Job loss-competition for the best price can lead to job loss through outsourcing.
Define balance of payments
Balance of payments- is a record of financial transactions between one country and its trading partners.
Definition of visible imports and exports
goods that we can see or touch. e.g soft drinks, footwear
Definition of invisible imports and exports
services e.g tourism,insurance
Favourable balance in the BOP or a BOP surplus
A country recorded more inflow of foreign exchange (exports) than outflows (imports)
Unfavourable ( adverse balance in the BOP or a BOP deficit
A country recorded more outflows of foreign exchange (imports) than inflows( exports)
Main components of the BOP
1.Current Account
2.Capital Account
3.Official Financing
Definition of Current Account
The exchange of goods and services is recorded.
Balance of Trade
The difference between a country’s visible exports and imports
Terms of Trade
an expression for the rate or ratio at which one commodity is exchanged for another.
Definition of capital account
The capital account records inflows and outflows with respect to short-term, medium-term and long-term investment.
Definition of Official Financing
how a deficit or surplus was financed
Correcting an adverse BOP- to finance a BOP deficit (short-term)
-Borrowing from other Central Banks
-Borrowing from the International Monetary Fund
-Exchange control
-Drawing down reserves
-Importing on credit
To correct or address a BOP deficit (long-term)
Devaluation- this is lowering the value of a country’s currency. Makes imports more expensive and exports cheaper.
Tariffs- tariffs are protective taxes placed on imports.This will result in an increase in the price of imports and imports will decrease.
Quotas- this specifies the maximum quantity of a commodity permitted into the country from abroad per unit of time.
Import control- a complete ban on a particular item.
Definition of national income/national product
National income/national product- the total output of a country over a period of time measured in terms of the money value of the total production of goods and services.
Reasons for calculating national income
-allows them to compare the flow of goods and services in n year to another. Can compare economic position of different countries.
-national income figures can give some indication of standard living of the people in the country from year to year
-national income figures indicate the rate of the nation’s income is growing so government can plan the economy and business people can plan future investment.
Ways to measure national income
-the factor-earnings or income-approach- we sum the dollar earnings of the factors of production.
the expenditure method-we combine the spending of the five key segments in an economy. The exports( added together) an imports is subtracted from the total.
-the output approach- we add up the value of the final output making the necessary adjustments to prevent double counting.
definition of gross domestic product
the total value of all goods and services produced in a country over a given period of time.
definition of gross national product
the total value of goods and services produced by domestically owned and controlled factors of production
definition of net national product
the gross national product minus depreciaton. Th process by which an asset loses value over time.
definition of personal income
calculated by subtracting profits retained by businesses, business taxes, social security contributions and adding transfer payments.
definition of disposable income
we subtract the personal taxes on income, inheritance and personal property to the government by householders.
