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:
“Turning, I kissed her,
Easily for sheer joy tipping the balance of love.”
—Philip Larkin (1922–1986)
“Genius has infused itself into nature. It indicates itself by a small excess of good, a small balance in brute facts always favorable to the side of reason.”
—Ralph Waldo Emerson (1803–1882)
“...to many a mother’s heart has come the disappointment of a loss of power, a limitation of influence when early manhood takes the boy from the home, or when even before that time, in school, or where he touches the great world and begins to be bewildered with its controversies, trade and economics and politics make their imprint even while his lips are dewy with his mother’s kiss.”
—J. Ellen Foster (1840–1910)