International Trade and Money summary [211581]2023
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What is Absolute and Comparative Advantage? Define a Trade-off - -Absolute Advantage- refers to a country's ability to produce a certain good more efficiently than another country. The real world is f... ar more complicated than this. David Ricardo, an early 19th century British economist argues that these simple principles can be used to explain International Trade. Countries can be rational operators and eventually produce products in which they have a comparative advantage thus having a comparatively low opportunity cost. Comparative Advantage- refers to a country's ability that specializes in the production of a good that they are relatively efficient in producing in comparison to another country. Trade-off- The exchange of one thing for another, trade-offs create opportunity costs. -Define Imports, Exports, Visibles, Invisibles, Onshore services and Offshore services - -Imports- The movement of commodities into the country. Exports- The movement of commodities out of the country. Visibles- tangible products, goods. Invisibles- intangible products, services. Onshore services- provided by the exporting country to foreign buyers who must come to the country that created them to consume them e.g. Tourism Offshore services- provided by the exporting country to individuals overseas. -Why has trade developed? - -Trade has developed due to specialization: regions/countries focus on producing goods they have an advantage in. Interdependence- countries rely on each other to produce goods they need or can't produce efficiently. - A surplus of goods causing exports in a country. Little incentive to produce at domestic price as the world price ensures profit. [Show More]
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