Balance of Trade
Balance of trade represents a difference in value for import and export for a country. A country has demand for an import when domestic quantity demanded exceeds domestic quantity supplied, or when the price of the good (or service) on the world market is less than the price on the domestic market.
The balance of trade, usually denoted, is the difference between the value of the goods (and services) a country exports and the value of the goods the country imports:
, or equivalently
A trade deficit occurs when imports are large relative to exports. Imports are impacted principally by a country's income and its productive resources. For example, the US imports oil from Canada even though the US has oil and Canada uses oil. However, consumers in the US are willing to pay more for the marginal barrel of oil than Canadian consumers are, because there is more oil demanded in the US than there is oil produced.
In macroeconomic theory, the value of imports can be modeled as a function of the domestic absorption and the real exchange rate . These are the two largest factors of imports and they both affect imports positively:
Read more about this topic: Import
Famous quotes containing the words balance of, balance and/or trade:
“They relieve and recommend each other, and the sanity of society is a balance of a thousand insanities. She punishes abstractionists, and will only forgive an induction which is rare and casual.”
—Ralph Waldo Emerson (1803–1882)
“Mental health depends upon the maintenance of a balance within the personality between the basic human urges and egocentric wishes on the one hand and the demands of conscience and society on the other hand.”
—Selma H. Fraiberg (20th century)
“a highly respectable gondolier,
Who promised the Royal babe to rear
And teach him the trade of a timoneer
With his own beloved brattling.”
—Sir William Schwenck Gilbert (1836–1911)