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Defintions – Section 4 January 19, 2011

Posted by Avu in Section 4.
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Factor endowments – factors of production available to a country
Specialization – situation in which a country devotes more resources towards making that which their factor endowments give an advantage to produce
Absolute advantage – a situation where a country is indefinitely able to produce more than another country with the same FOPs
Comparative advantage – a situation where a country is able to produce a good at a lower opportunity cost than another country
Free trade – international trade that takes place without any trade barriers
Tariff – a tax that is placed upon imported goods to protect domestic companies from foreign competition that raises government revenue
Quota – a limit that is placed on the quantity of goods and services that may be imported into a country
Subsidy – money paid by a government to a firm which is done to increase the per unit output of the firm and also to give it an advantage against firms from overseas until it can compete with foreign competitors
Dumping – selling a good to another country at a price below unit production cost
Balance of payments – the record of the value of all payments made between the residents of one country with the residents of all other countries over a given period of time
Balance of trade – the net revenue from exports and imports of products over a period of time
Current account – measure of the flow of funds from trade in goods and services, net investment income flows, including profit, interest, and dividends, and net transfers of money, including foreign aid, grants, and remittances
Capital account – measure of the buying and selling of assets between countries. Assets either show ownership or represent lending
Current account surplus – a situation that exists when the revenue from exports and included income flows is greater than the expenditure on imports and included income flows over a given period of time
Current account deficit – a situation that exists when the revenue from exports and included income flows is less than the expenditure on imports and included income flows over a given period of time
Marshall-Lerner condition – theory that the depreciation of a currency will result in an improvement in the current account balance only if the elasticity of demand for exports plus the elasticity of demand for imports are elastic, or greater than one
J-curve – a theory that suggests that even if the Marshall-Lerner condition is fulfilled, depreciation of a currency will lead to a further worsening of the current account deficit before improvement occurs in the long term
Exchange rate – the value of a currency in terms of another currency
Fixed exchange rate – exchange rate system in which the value of a currency is fixed to either the value of another currency, the average value of a group of currencies, or a commodity like gold
Floating exchange rate – exchange rate system in which the value of a currency is determined by the demand and supply of the currency on international markets
Depreciation – a fall in the value of a currency in terms of another currency in a floating exchange rate system
Appreciation –  a rise in the value of a currency in terms of another currency in a floating exchange rate system
Devaluation – a fall in the value of a currency in a fixed exchange rate system
Revaluation – a rise in the value of a currency in a fixed exchange rate system

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