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An approach to explaining exchange rates that stresses their role in changing the proportions of different currency-denominated assets in portfolios. The exchange rate adjusts to equate these proportions to desired levels.
Industry:Economy
A beneficial externality; that is, a beneficial effect of one economic agent's actions on another. Considered a distortion because the first agent has inadequate incentive to act. Examples are the attractiveness of well-kept farms for the tourism industry (a production externality) and reduced contagion of disease due to vaccines (a consumption externality).
Industry:Economy
A game in which the payoffs to the players may add up to more than zero, so that it may be possible for all players to gain. Contrasts with zero sum game. Due to the gains from trade, trade and trade policy may be thought of as positive sum games.
Industry:Economy
A change that could become Pareto-improving if it were accompanied by suitable redistribution. A move to free trade, although it is likely to hurt some people if done alone, is beneficial under the Kaldor-Hicks criterion because it is a potential Pareto improvement. Also called a Kaldor improvement, a Kaldor-Hicks improvement, or a Hicks-Kaldor improvement.
Industry:Economy
1. In trade policy, this refers to special advantages, such as lower-than-MFN tariffs, accorded to another country's exports, usually in order to promote that country's development. See GSP. 2. In trade theory, this refers to the attitudes of consumers toward different goods, as represented by a utility function. Some propositions in trade theory use the assumption of identical and/or homothetic preferences.
Industry:Economy
A tariff lower than the MFN tariff, levied against imports from a country that is being given favored treatment, as in a preferential trading arrangement or under the GSP.
Industry:Economy
1. A group of countries that levy lower (or zero) tariffs against imports from members than outsiders. Includes FTAs, customs unions, and common markets. Encouragement to use this term instead of the more misleading FTA has come from Jagdish Bhagwati, as in Bhagwati and Panagariya (1996). 2. Frankel (1997) uses PTA for an arrangement where internal tariffs are reduced but not zero, reserving FTA for a trading bloc with zero internal tariffs.
Industry:Economy
A government-imposed upper limit on the price that may be charged for a product. If that limit is binding, it implies a situation of excess demand and shortage.
Industry:Economy
A method of defining relative factor abundance based on ratios of factor prices in autarky: Compared to country ''B'', country ''A'' is abundant in factor ''X'' relative to factor Y iff ''w<sub>X</sub><sup>A</sup>/w<sub>Y</sub><sup>A</sup> < w<sub>X</sub><sup>B</sup>/w<sub>Y</sub><sup>B</sup>'', where ''w<sub>I</sub><sup>J</sup>'' is the autarky price of factor ''I'' in country ''J'', ''I=X,Y, J=A,B''. This is also known as the "Ohlin definition," since it is the one used by Ohlin (1933).
Industry:Economy
