Term
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Definition
| The portion of a balance of payments that portrays the market value of a country's "visible" (commodity trade) and "invisible" (eg shipping services) exports and imports with the rest of the world |
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Term
| income elasticity of demand |
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Definition
| The responsiveness of the quantity demanded of a commodity to changes in the consumer's income, measured by the proportionate change in quantity divided by the proportionate change in income. |
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Term
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Definition
| The portion of the country's balance of payments that shows the volume of private foreign investment and public grants and loans that flow into and out of a country over a given period, usually one year. |
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Term
| Price elasticity of demand |
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Definition
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Term
| Export earnings instability |
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Definition
| Wide and unpredictable fluctuations in LDC earnings on commodity exports resulting from low price and income elasticities of demand leading to erratic movements in export prices |
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Term
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Definition
Px / Pm
Px= export price index
Pm= import price index |
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Term
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Definition
| The argument that the primary product export orientation of LDCs results in a decline in their terms of trade and a loss of income |
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Term
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Definition
L= ALCQC + ALWQW
L: total amount of labor resources
ALC: labor required for each unit of cheese production
QC: total units of cheese production
AWC: labor required/ unit of wine production
QW: total units of wine production
IF the relative price of cheese is greater than the opportunity cost, then the economy should specialize in producing cheese |
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Term
| Specialization (comparative advantage 2) |
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Definition
Pc/Pw < Pc*/Pw*.
Specialization (cheese in this example) will lead to an upward pressure for the relative price of the good in the home country. and whatever the foreign country specializes in (wine) will also have an upward pressure. |
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Term
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Definition
| If country A can produce more of a commodity with the same amount of real resources than country B (i.e. at a lower absolute unit cost), country A is at most, said to have an absolute advantage over country B |
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Term
| Hecksher-Ohlin neoclassical / factor endowment trade theory |
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Definition
| Differences in labor, labor skills, physical K, land, or other factors of production across countries create productive differences that explain why trade occurs |
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Term
| Factor price equalization |
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Definition
| The theory predicts that input factor prices will equalize among countries that trade. Since relative output prices are equalized and because of the direct relationship between output and input prices, factor prices are also equalized. |
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Term
| How can government affect growth? (4 ways) |
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Definition
Factor accumulation: investment in human and physcial capital, indirectly through fiscal discipline to retain domestic savings
set rules of the game: market regulation and enforcing the rule of law (especially property rights)
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Term
| Externalities of government? + and - |
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Definition
+
research and development, education, overcome coordination failure, regulate the market
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pollution |
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Term
| Why don't we need government? |
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Definition
| Government failure is worse than market failure. Equity versus efficiency tradeoff, government can be inefficient |
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Term
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Definition
| private saving-private investment+ current account deficit |
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Term
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Definition
| public expenses < public revenues |
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Term
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Definition
Income tax- regressive in LDCs
Property Tax- easy to administer and observable, yet weak source of govn't revenue in LDCs
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Term
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Definition
| corporate taxes, indirect tax on commodities (largest source of public revenue in LDCs, easy to collect), import + export duties |
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Term
| Minimizing cost of securing maximum revenue (features of commodity to be taxes) |
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Definition
imported or produced by a small number of licensed firms (tax evasion less likely)
LOW Price elasticity of demand- if tax adds to price, demand won't significantly change
HIGH income elasticity of demand- as income rises, more tax money will be collected
*better to tax expensive commodities (cars, manufacured goods) rather than household commodities |
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Term
| Why is public administration a "scarce resource" in LDC's? |
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Definition
-lack of training
-political instability
-poor rule of law & public disorder
-low conceptions of public service and statehood
-different civil service goals of governments
-shortage of skilled and competent managers
-parallel personnel systems |
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Term
| Why are public-owned enterprises inefficient/ waste resources/ and low in profit? |
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Definition
-pressured to pursue both social and commercial goals
-over centralization of decision making
-bureaucratization of management
-unnecessarily use k-intensive techniques, don't utilize Labor |
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