CHAPTER 15
ECONOMICS 3:
International Trade
R. Delaney
Foreign or International Trade
 Foreign trade (or international trade) means
selling goods and services to, and buying goods
and services from, other counties.
 An export is a good or service provided by the
residents of a country that causes money to
come into the country when sold.
 An import is any good or service purchased by
the residents of a country that causes money to
go out of the country.
2
R. Delaney
Visible Exports and Visible Imports
 Visible exports are
physical products
produced by the residents
of a country that cause
money to come into the
country when sold.
Examples of Ireland’s
visible exports are:
 Visible imports are
physical goods purchased
by the residents of a
country that cause money
to go out of the country.
Examples of Ireland’s
visible imports are:
3
R. Delaney
Invisible Exports and Invisible
Imports
 Invisible exports are
services provided by the
residents of a country that
cause money to come into
the country. Examples:
incoming tourists and the
sale of financial services
abroad.
 Invisible imports are
services purchased by the
residents of a country
that cause money to go
out of the country.
Examples: outgoing
tourists and “foreign”
pop groups playing in
Ireland.
4
R. Delaney
The Balance of Payments

The balance of payments is a record of a
country’s economic transactions with the rest
of the world.

1.
2.
3.
It is made up of:
The Balance of Trade
The Balance on the Current Account
The Capital Account
5
R. Delaney
6
Balance of Trade
 The Balance of Trade is the difference
between the value of visible exports and visible
imports
Total value of visible exports
- Total value of visible imports
Balance of Trade (Surplus)
€20,000m
€15,000m
€5,000m
R. Delaney
7
The Balance on the Current
Account
 The Balance on The Current Account is the
balance of trade plus or minus the difference
between the value of invisible exports and
imports (Sometimes, in JC exam questions, this
is called the balance of payments)
Balance of Trade
€5,000m
Total value of invisible exports
€18,000m
Less Total value of invisible imports
€20,000m
Balance on the Current Account
(€2,000m)
€3,000m
R. Delaney
The Capital Account
 The capital account shows the flow of all
money into and out of the country.
 Money can come into or go out of the country
because of international trade, payments to and
from the EU, and net direct foreign investment.
 Net direct foreign investment is the difference
between money invested in Ireland from abroad
and money invested abroad by Irish residents.
8
R. Delaney
Reasons for Importing
1. Countries import to obtain raw
materials not available in their own
country that are needed by their
domestic industries.
2. Countries import to obtain capital
goods (e.g. machinery) not available in
their own country that are needed by
their domestic industries.
3. Countries import to obtain consumer
goods that cannot be made, or cannot
be made at a reasonable price, in their
own countries.
9
R. Delaney
Reasons for Exporting
1. Countries export to earn money from
abroad to pay for their imports.
2. Countries export in order to create
employment in their own countries
that would not otherwise be created.
3. Countries export in order to sell off
their surplus production. Selling the
surplus goods abroad earns extra
income for these countries.
1
0
R. Delaney
Problems Facing Irish Firms
In International Trade
1
1
 Language differences makes communications more
difficult.
 Transport: all Irish exports must bear the
additional cost of sea or air transport, as well as the
normal road or rail transport.
 Insurance costs are high due to the additional
handling of goods arising from extra transport
methods required.
 Different countries set different minimum
A worried man
standards of production and different
specifications for products.
 Currencies change in value on a day to day
basis adding greater risk for importers.