Factor endowments – any means of production that a country has available to them to produce goods and services.
Specialization – when a country specializes in the production of goods and services where they have a comparative advantage in production.
Absolute advantage - an instance where a country is able to produce more than another country using the same means of production.
Comparative advantage – an instance where a country is able to produce 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 local companies from international competition and to generate revenue for the government.
Quota - a limit that is placed on the amount of imported goods and services that can enter a country.
Subsidy – money paid by a government to a firm which is done to encourage the output of the firm and also to give it an advantage against firms from overseas until it can compete on the international markets.
Balance of payments – the value of all payments made between the residents of one country with the residents of another country over a given period of time.
Balance of trade – the revenue received from the exports of goods with the expenditure on the imports of goods removed over a given period of time.
Current account – measure of the flow of funds from trade in goods and services including profit, interest, dividends, foreign aid, grants, and remittances.
Capital account – measure of the buying and selling of assets between countries. These assets that are bought and sold are separated into assets that show ownership and assets that show lending.
Current account surplus – a situation that exists when the revenue from the export of goods and services and income flows included is greater than the expenditure on the import of goods and services including income flows over a given period of time.
Current account deficit - a situation that exists when the revenue from the export of goods and services and income flows included is less than the expenditure on the import of goods and services including income flows over a given period of time.
Marshall-Lerner condition – a condition which states that a depreciation or devaluation of a currency will only result in an improvement in the current account balance if the elasticity of demand for exports and the elasticity of demand for imports is more than one.
J-curve – theory that suggests that even if the Marshall-Lerner condition is fulfilled, a depreciation or devaluation of a currency will lead to a further worsening of the current account deficit before long term improvement occurs.
Exchange rate – the value of a currency expressed in the terms of another currency.
Fixed exchange rate – an exchange rate system where the value of a currency is fixed to either the value of another currency, the average value of a group of currencies, or to a commodity.
Floating exchange rate – an exchange rate system where the value of a currency is determined by the demand and supply of the currency on international markets.
Depreciation – fall in the value of a currency in terms of another currency in a floating exchange rate system.
Appreciation – rise in the value of a currency in terms of another currency in a floating exchange rate system.
Devaluation – fall in the value of a currency in a fixed exchange rate system.
Revaluation - rise in the value of a currency in a fixed exchange rate system.
