Comparative Advantage, ISI, and the Impact of Culture on Economies
Comparative Advantage and Global Welfare
World output increases when countries specialize in producing goods and services where they have a comparative advantage, as defined by economist David Ricardo.
Countries should allocate their resources to produce goods and services for which they have a comparative cost advantage. This leads to more efficient production, where one partner makes products cheaper, better, and faster than its trading partner.
In conclusion, trade based on comparative advantage
Read MoreUnderstanding Net Exports and Capital Outflow in Open Economies
Chapter 6 Homework: Key Concepts in Open Economies
Net Exports and the Relationship with National Saving and Investment
The value of net exports is also the value of the difference between national saving and domestic investment.
Positive Net Capital Outflow
If net capital outflow is positive, then the trade balance must be positive.
National Saving Exceeds Domestic Investment
If national saving exceeds domestic investment, then net exports are positive, and net capital outflows are positive.
Calculating
Read MoreFundamental Economic Terms and Their Applications
Real Assets
Those things that are deemed adequate to meet human needs.
Needs
A sense of lack of something linked to the desire to satisfy it. The economy is particularly interested in those needs whose satisfaction requires the use of scarce resources.
Marginal Analysis
Assumes that people make decisions weighing the benefits against the additional costs at the time we choose.
Incentives
People change their behavior in response to a reward.
FPP (Production Possibilities Frontier)
A simple tool to study efficiency,
Read MoreUnderstanding GDP, Inflation, and Economic Indicators
GDP (Market Price)
GDP mp = Household consumption + Investment + Public spending + (Exports – Imports)
GDP (Cost of Factors)
GDP cf = Wages + Interest income + Benefits + Business profits + Official grants
Nominal vs. Real GDP
- Nominal GDP: Calculated by multiplying the quantity of final goods and services by their current prices.
- Real GDP: Calculated using the quantities of goods and services in a given year, multiplied by the prices of a base year.
Deflator: Eliminates the effect of inflation on the
Read MoreEssential Business Terms: Definitions and Key Concepts
General Business Terms
- Business Plan: A formal report showing how a business sets out to achieve its aims and objectives.
- Consumer: The ultimate user of the product or service; the consumer may not have paid for it.
- Customer: A purchaser of a product or service.
- Customer Satisfaction: How happy the customer is with the product or service.
- Entrepreneur: An individual with an idea for a business.
- External Stakeholder: An individual or group outside the business who is indirectly connected with that business.
Understanding Bank Accounts, Loans, and Financial Operations
Liabilities
Liabilities are operations by means of which customers make funding available to banks and savings institutions. These are known as bank accounts. Deposits taken in any financial institution are:
- Demand Deposits (Checking Accounts): Against delivery, the deposited entity is committed to the custody of the same and agrees to make charges and payments on behalf of the depositor. Some banks agree to pay interest at the time of formalization.
- Savings Accounts: These are similar to checking