#cfa-level-1 #economics #economics-in-a-global-context #los #reading-20-international-trade-and-capital-flows
An open economy , is an economy that trades with other countries. If there are no restrictions on trade, then members of an open economy can buy and sell goods and services at the price prevailing in the world market, the
world price .
An open economy can provide domestic households with a larger variety of goods and services, give domestic companies access to global markets and customers, and offer goods and services that are more competitively priced.
In addition, it can offer domestic investors access to foreign capital markets, foreign assets, and greater investment opportunities.
For capital intensive industries, such as automobiles and aircraft, manufacturers can take advantage of economies of scale because they have access to a much larger market.
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2.1. Basic Terminologyods and services are produced and consumed domestically. The price of a good or service in such an economy is called its autarkic price . An autarkic economy is also known as a closed economy because it does not trade with other countries. <span>An open economy , in contrast, is an economy that trades with other countries. If there are no restrictions on trade, then members of an open economy can buy and sell goods and services at the price prevailing in the world market, the world price . An open economy can provide domestic households with a larger variety of goods and services, give domestic companies access to global markets and customers, and offer goods and services that are more competitively priced. In addition, it can offer domestic investors access to foreign capital markets, foreign assets, and greater investment opportunities. For capital intensive industries, such as automobiles and aircraft, manufacturers can take advantage of economies of scale because they have access to a much larger market. Free trade occurs when there are no government restrictions on a country’s ability to trade. Under free trade, global aggregate demand and supply determine the equilibrium quantity an Summary
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