27 SUMMARY A country will export a good if the world price of the good is higher than the domestic price without trade. Trade raises producer surplus, reduces consumer surplus, and raises total surplus. A country will import a good if the world price is lower than the domestic price without trade.
What determines what a country trades?
Countries trade with each other when, on their own, they do not have the resources, or capacity to satisfy their own needs and wants. By developing and exploiting their domestic scarce resources, countries can produce a surplus, and trade this for the resources they need.
What determines a country’s limits to acceptable terms of trade?
The limits of the terms of trade are determined by the opportunity costs of the two countries. For example, the terms of trade clothing will be between 5/3 and 3. Suppose the terms of trade are 2 units of food per unit of clothing.
What are the factors that influence the value of exports and imports?
The eight factors that influences the value of a country ‘s exports and imports are as follows: i. The country’s inflation rate: If the country has a relatively high rate of inflation, domestic households and firms are likely to buy a significant number of imports. The country’s firms are also likely to experience some difficulty in exporting.
Why do some countries export more than others?
For example, distortive government policies, such as trade barriers, could encourage the inefficient growth of a specific sector or change the mix of a country’s exports, as could high trade costs associated with the transport of goods or clearance at the border.
What kind of goods does your country export?
But the country’s top goods export is transportation equipment, a category that includes vehicles, railway locomotives, and auto parts and accessories. Indeed, three of the country’s top five product exports are automobiles, according to trade statistics at a fairly detailed level. What could be the reason for this discrepancy?
How is the balance of trade in a country determined?
A country’s balance of trade is defined by its net exports (exports minus imports) and is thus influenced by all the factors that affect international trade.
