International Trade and Balance of Payments Flashcards
What is international trade?
Exchange of products between countries
What is a closed economy?
When countries don’t trade with other countries
What does international trade consist of?
Exports and imports of goods and services
What are exports?
Value of products a country sells abroad
What are imports?
Value of products a country buys abroad
What does exports depend on?
Quality and price of products, ease of access to markets, protectionism, incomes abroad, exchange rate, marginal propensity to import in other countries and customer preferences
What does imports depend on?
Quality and price of products, protectionism, level of income in UK, exchange rate, marginal propensity to import in UK and customer preferences
When does trade take place?
Within all levels of the economy
What is used to determine if trade is beneficial?
Opportunity cost and PPC
What are the assumptions of international trade?
Trade between 2 countries, they both produce only 2 products, their resources are fully employed and fixed, there are constant returns to scale and there are no transport costs
What are the terms of trade?
A country is willing to export if the price is higher than their opportunity cost or a country is willing to import if the price is cheaper than their opportunity cost
What is the terms of trade index calculation?
Index of export prices / index of import prices x 100%
What is the balance of payments?
It records all transactions between one country and the rest of the world over a given period of time
What does a surplus mean?
That the country’s revenue from exports is greater than its spending on imports
What does a deficit mean?
It occurs if the outflows are bigger than the inflows over a given period
