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Flashcards in International Economics Deck (6):

International economics

Study of economic that occurs abroad

- Increase markets for sale of goods and services

- To obtain commodities not otherwise available; to obtain commodities at lower cost


Absolute and Comparative advantage

Absolute advantage - ability to produce a good or provide service more efficiently (fewer input resources)

Comparative - Lower opportunity cost derived from availability of resources and technology

To maximize output, entities should specialize in products or services that take lowest opportunity cost and they should trade. Entities should specialize in area they produce at the least opportunity cost


Principle of comparative advantage

Output of two or more entities greatest


Porter's Four Attributes

-Factor Endowment
-Demand Conditions
-Relating and Supporting Industries
-Firm Strategy, Structure, and Rivalry

Four Outcomes:
-Availability of resources and skills
-Information used to determine which opportunities to go into
-Goals of individuals within firms
-Pressure on firms to innovate and invest


Balance of Payment

Current account - Net dollar value for amounts earned for exports, amounts spent on import, income from investments, government grants to foreign entities, and the resulting net (export or import) balance

Capital account - Net dollar value of inflows from investments and loans by foreign entities, outflows from investment and loans US entities made broad

- Reflect net exchange in foreign ownership of US assets and US ownership of foreign assets

Financial account - Net dollar amount of US owed assets located abroad and foreign owned assets in the US;


Direct exchange rate vs indirect exchange rate

Direct - Domestic price of one unit of foreign currency

"Direct" = Domestic

Indirect - Foreign price of one unit of domestic currency

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