Key Concepts in International Trade & Economics

Factors of Goods and Services

Production Costs

These depend on the provision of factors of production and the technology used, which have a decisive influence on the selling prices of various goods and services.

Application in International Trade

This fosters international trade, as, in practice, it is very difficult for a single country to produce everything necessary to meet the preferences or tastes of its inhabitants.

Customs Territory Defined

A customs territory is a geographical area with free circulation of goods, and it does not necessarily coincide with the political boundaries of a country.

Theory of Comparative Advantage

According to this theory, countries seek to specialize in the production of goods and services they can exchange more efficiently in the international market.

Protectionism: Restricting Foreign Products

Protectionism is the set of actions taken to restrict the entry of foreign products in order to protect domestic industry.

Reasons for Protectionist Measures

• Protecting industries considered strategic for the public interest.
• Promoting industrialization and job creation.
• Developing emerging industries.
• Raising revenue (e.g., through tariffs).

Specific Protectionist Tools

• Taxing imports (tariffs).
• Setting limited quotas for foreign products.
• Establishing trade and industrial policies that favor domestic industries and their expansion.
• Implementing non-tariff barriers.

Terms of Trade Explained

This refers to the relative position of one country against its trading partners.

Benefits of Free Trade

• Increased efficiency of production factors.
• Increased and promoted competition.
• Greater variety and quantity of goods and services.
• Achievement of economies of scale.

Aggregate Demand Components

• Net Exports: Exports - Imports
• Formula: C + I + G + (X-M)
• Contributes to the external balance.

Double-Entry Bookkeeping Technique

This is a registration system that records all transactions twice: on one hand, the value of merchandise received or paid, and on the other, the money given or received.

Balance of Payments Accounting

This is an accounting document that records economic transactions conducted between residents of a country and the rest of the world during a determined period.

Current Account Breakdown

The current account records transactions in goods, services, and current transfers. Components include:

• Commercial (Goods)
• Services
• Income
• Current Transfers

Capital Account Details

The capital account covers capital transfers and the acquisition or disposal of non-financial assets. Components include:

• Capital Transfers
• Acquisition or disposal (sale) of non-financial assets

Financial Account Components

The financial account includes investment accounts and changes in reserves. Components include:

• Direct Investment
• Portfolio Investment
• Other Investments
• Changes in Reserves

Monetary System and Exchange Rates

Monetary systems are ways of fixing exchange rates, i.e., ways to fix the price of a currency.

Types of Exchange Rate Regimes:

• Free-floating
• Dirty floating
• Adjustable peg
• Fixed