International Trade Definitions Flashcards
(21 cards)
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
Current Account
A measure of the flow of funds from trade in goods and services + net income flows + net transfers of money
Financial Account
The net balance arising from the net flows of foreign direct investment and flows of portfolio investment and change in reserve assets
Diversification
A strategy to increase the variety of goods and services produced in order to avoid over-specialisation
Quota
A physical limit on the number/value of a good that can be imported into the country
Subsidies
The sums of money given by government to firms to lower their costs of production
Tariff
A tax on imports
