• An open economy is an economy in which goods and services are freely traded with other economies. • Imports are the goods and services bought from other countries. • Exports are the goods and services sold to other countries. • The trade of goods is known as visible trade. The trade of services is known as invisible trade.
• The difference between the value of a country’s visible imports and visible exports is called balance of trade.
• If visible exports are greater than visible imports, there is said to be a surplus balance of trade. If visible imports are greater than visible exports, there is said to be an deficit balance of trade.
• The difference between the value of a country’s total (visible and invisible) imports and total exports is called balance of payments.
• If total exports are greater than total imports, there is said to be a surplus balance of payments. If total imports are greater than total exports, there is said to be a deficit balance of payments.
• A tariff is a tax charged on imports to make them more expensive and encourage people to buy domestic products.
• A quota is a limit on the quantity of goods produced. • An embargo is a ban on the trade of certain goods. • A subsidy is a form of price support given by the government to businesses. • Global trade is the exchange of goods and services between different countries. • Global trade presents a number of benefits and challenges to the Irish economy. • Import substitution replaces imports with local production. • Summary of calculations:
Balance of trade = visible exports – visible imports Balance of payments = total exports – total imports
Taking stock A
Go to page 233 of your Activities and Accounts Book to check what you have learned in chapter 35.
