International Trade Definitions Flashcards
Absolute advantage
Country can produce more of a product than another country with a given level of resources
Comparative advantage
When a country can produce a good at a lower opportunity cost than another country
Direct investment
Investment in physical capital- there’s a degree of ownership/control
Portfolio investment
Financial investment i.e. purchase and sales of shares and bonds
Infrastructure
Essential facilities/capital goods and services that increases efficiency of economic activity. It is usually supplied by the government
Exchange Rate
The value of a currency in terms of another
Fixed exchange rate
A currency’s value fixed against the value of another currency
Managed float
Periodic intervention by the Central Bank in order to influence the Exchange Rate
Depreciation
The fall in the value of a currency in a floating exchange system
Preferential Trade Agreements
An agreement between 2 or more countries to lower barriers between each other on particular products
Bilateral trade agreements
Trade between two countries which aims to lower trade barriers
Customs union
Form of economic integration where member countries agree to liberalize trade amongst themselves and adopt a common external tariff
Common market
A trading bloc where member countries eliminate all trade barriers, adopt a common policy towards non-member states and have a free flow of factors of production
Monetary union
A common market but also shares a common currency
Terms of trade
The ratio of a country’s average price of exports to the country’s average price of imports
