Market structure and international trade Flashcards
(19 cards)
Perfect competition
● Perfect market information
● Homogeneous goods and services
● Price-taker
Monopolistic competition
● Many non-dominating sellers
● Easy to enter and exit the market freely
● Heterogeneous goods and services
Oligopoly
● Few dominant sellers
● Interdependence of firms in pricing strategies
● Imperfect market information
Monopoly
● Single seller in the market
● No close substitutes (still faces competition)
● Entry barriers (sources of monopoly power)
Absolute advantage
can produce more units of a good than another country with the same amount of resources
Comparative advantage
can produce a good at a lower opportunity cost than another country
Principle of comparative advantage
If each country specializes in the production of a good with a lower opportunity cost, the total output will increase
Effect of exports on current account
Increases
Effect of imports on current account
Decreases
Foreign currency appreciates against domestic currency (Effect on export price and import)
Export price in terms of domestic currency will increase and the quantity demanded for imports will fall
Foreign currency depreciates against domestic currency (Effect on export price and import)
Export price in terms of domestic currency will decrease and the quantity demanded for imports will rise
Current account balance
Visible trade balance + Invisible trade balance + Income receivable balance + Current transfer balance
Visible trade balance
Export of goods - Import of goods
Invisible trade balance
Export of services - Import of services
Income receivable balance
Income receivable from abroad - Income payable from abroad
Current transfer balance
Current transfers from abroad - Current transfers to abroad
Balance of payments
Current account balance + Balance of capital and financial account
Producer surplus formula
Total revenue - Total variable cost
Consumer surplus formula
Maximum price willing to pay - Actual price paid
