Intro to Business: Chapter 3

Balance of payments surplus

Overage that occurs when more money flows into a nation than out of that nation.

Trade Surplus

Overage that occurs when the total value of a nation's exports is higher than the total value of its imports.

Balance of payments deficit

Shortfall that occurs when more money flows out of a nation than into that nation.

As technology changes and the workforce evolves, nations may gain or lose comparative advantage

Why does comparative advantage seldom (rarely) remain static?

Better access to... 1. factors of production 2. reduced risk - reduces dependence on one country HOWEVER an economic meltdown in one country can have a huge impact on other countries 3. inflow of new ideas

3 reasons companies engage in international trade:

Balance of Trade - incorporates trade with all foreign nations

A basic measure of the difference in value between a nation's exports and imports, including both goods and services.

Balance of payments - includes foreign borrowing and lending, foreign aid payments and receipts, and foreign investments

A measure of the total flow of money into or out of a country.

Exchange Rates

A measurement of the value of one nation's currency relative to the currency of other nations.

Adv:

Adv. of foreign outsourcing (1): Disadv. of foreign outsourcing (2);

Foreign outsourcing / contract manufacturing

Contracting with foreign suppliers to produce products, usually at a fraction of the cost of domestic production.

Countertrade - to meet needs of customers who don't have access to hard currency or credit, usually in developing counties

International trade that involves the barter of products for products rather than for currency.

Trade Deficit - as goods and services flow into the economy, money flows out to pay for it all

Shortfall that occurs when the total value of a nation's imports is higher than the total value of its exports.

1976

The US has had an overall trade deficit since what year?

Comparative advantage

The benefit a country has in a given industry if it can make products at a lower opportunity cost than other countries.

Absolute advantage

The benefit a country has in a given industry when it can produce more of a product than other nations using the same amount of resources.

Opportunity Cost

The opportunity of giving up the second-best choice when making a decision.