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:
“Unfortunately, the balance of nature decrees that a super-abundance of dreams is paid for by a growing potential for nightmares.”
—Peter Ustinov (b. 1921)
“In a famous Middletown study of Muncie, Indiana, in 1924, mothers were asked to rank the qualities they most desire in their children. At the top of the list were conformity and strict obedience. More than fifty years later, when the Middletown survey was replicated, mothers placed autonomy and independence first. The healthiest parenting probably promotes a balance of these qualities in children.”
—Richard Louv (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)