trade surplus

Examples of trade surplus in the following topics:

• Absolute Advantage and the Balance of Trade

  • Absolute advantage and balance of trade are two important aspects of international trade that affect countries and organizations.
  • Absolute advantage and balance of trade are two important aspects of international trade that affect countries and organizations .
  • A positive balance is known as a trade surplus if it consists of exporting more than is imported; a negative balance is referred to as a trade deficit or, informally, a trade gap.
  • The balance of trade is sometimes divided into a goods and a services balance.
  • The European Free Trade Agreement has helped countries international trade without worrying about absolute advantage and increases net exports.

• Lenski's Synthesis

  • The crops they produce are surplus goods, traded for economic gain.
  • There was little trading between the groups, and there was not much inequality between groups because everyone possessed basically the same goods as everyone else.
  • Groups traded these surplus goods with each other, and trade led to inequality because some people accumulated more possessions than others.
  • According to Lenski, inequality is the result of increasing surplus—some individuals will have ownership of surplus goods, others will not.
  • In these societies, there are few surplus goods.

• Balance of Trade

  • Suppose the USA imported $1 billion worth of goods and services in 2008 and exported $750 million dollars worth of goods and services, then its trade deficit would be $1 billion minus $750 million, which equals a trade deficit of $250 million.
  • A positive balance is known as a "trade surplus," if it consists of exporting more than is imported; a negative balance is referred to as a "trade deficit" or, informally, a "trade gap."
  • The balance of trade is sometimes divided into a goods and a services balance.
  • Factors that can affect the balance of trade include:
  • In addition, the trade balance is likely to differ across the business cycle.

• Costs of Trade

  • Restricted trade affects the welfare of society because although producers experience increases in surplus and additional revenue, the loss faced by consumers is greater than any benefit obtained .
  • Economic inefficiency can be created through trade diversion.
  • When free trade is applied to only the high cost producer it can lead to trade diversion to not the most efficient producer, but the one facing the lowest trade barriers, and a net economic loss.
  • The nature of industries and trade increases economic inequality.
  • Tariffs cause the consumer surplus (green area) to decrease, while the producer surplus (yellow area) and government tax revenue (blue area) increase.

• Trade Leads to Gains

  • Producers and consumers trade because the exchange makes both parties better off.
  • Producers and consumers trade because the exchange makes both parties better off.
  • The sum of consumer and producer surplus is called economic, or social, surplus, and reflects the total amount of benefit received by society when consumers and producers trade.
  • One way to look at whether a transaction is a Pareto improvement is to ask whether it increases consumer or producer surplus without decreasing either party's surplus.
  • Consumer surplus is the area between the demand line and the equilibrium price, and producer surplus is the area between the supply line and the equilibrium price.

• Relationship Between Specialization and Trade

  • Specialization refers to the tendency of countries to specialize in certain products which they trade for other goods, rather than producing all consumption goods on their own.
  • Countries produce a surplus of the product in which they specialize and trade it for a different surplus good of another country.
  • However, specializing in the product for which they have a comparative advantage and then trading would allow both countries to consume more than they would on their own.
  • There is one case in which countries are not better off trading: when both face the same opportunity costs of production.
  • In this case, specialization and trade will result in exactly the same level of consumption as producing all goods domestically.

• Promoting Free Trade

  • According to the law of comparative advantage, the policy permits trading partners mutual gains from trade of goods and services.
  • Unilateral promotion of free trade is when a country decides to reduce its own trade barriers without any promise of action from its trading partners.
  • Examples of multilateral promotion of free trade are trade agreements such as the North American Free Trade Agreement (NAFTA) in which the US, Mexico, and Canada agreed to allow free trade among one another.
  • Reducing barriers to free trade may be politically difficult, but due to the law of comparative advantage, will allow for increased overall surplus for each trading partner in the long run.
  • Describe the effects of free trade and trade barriers on long run growth

• The Role of the Financial System

  • A financial market or system is a market in which people and entities can trade financial securities, commodities, and other fungible items.
  • There are both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded).
  • Saving mobilization: Obtaining funds from the savers or surplus units such as household individuals, business firms, public sector units, central government, state governments, etc. is an important role played by financial markets.
  • National Growth: An important role played by financial market is that, they contribute to a nation's growth by ensuring unfettered flow of surplus funds to deficit units.
  • They provide transparent and active trading platforms that promote liquidity and access to funds to on a global scale.

• Quotas

  • Barriers to trade exist in many forms.
  • Like other trade barriers, quotas restrict international trade, and thus, have consequences for the domestic market.
  • This hurts the domestic consumer, who experiences a loss in consumer surplus.
  • On the other hand, this very action benefits the domestic producer, who sees an increase in producer surplus.
  • Often, the increase in producer surplus is not enough to offset the loss in consumer surplus, so the economy experiences a loss in total surplus.

• Impact of Changing Price on Producer Surplus

  • Producer surplus is affected by many different factors.
  • Lower prices result in lower potential producer surplus and goods supplied: with a lower equilibrium price, the producer surplus triangle will be smaller.
  • Decreases in the supply curve will cause decreases in producer surplus.
  • Increases in the supply curve will cause increases in producer surplus.
  • Producer surplus is zero because the price is not flexible.