LU4 Chapter 16: The foreign sector
LO1: Explain why countries trade
LO2: Explain how absolute advantage and comparative advantage determine how trade
will take place
LO3: Describe measures to control the volume of imports
LO4: Discuss exchange rate determination between the US dollar and the rand
LO5: Explain, with the aid of diagrams, the impact of changes in demand and supply of
dollars on the exchange rate
LO6: Briefly explain the three policy options for floating exchange rate regimens
LO7: Explain the significance of changes in the terms of trade
, LO1: Explain why countries trade NB
The world’s economies have become increasingly integrated - this process is called
globalisation
The extent of a country’s involvement in globalisation is called openness, or the
degree of integration into the international economy
The South African economy is described as an open economy
A country is self-sufficient (autarky) if it makes everything it consumes within the
borders of the country
But Adam Smith (An Inquiry into the nature and causes of wealth of nations (1776)
said it is better to specialise in a couple of goods and services and trade with other
countries because countries have different resources
Factors of production are not equally distributed amongst countries
i.e. South Africa has a lot of gold and platinum (natural resources) but not a lot of
computer factories
Therefore, South Africa specialises in mining gold and platinum, exporting the
surplus and importing computers (capital) from America, China and Japan
LO1: Explain why countries trade
LO2: Explain how absolute advantage and comparative advantage determine how trade
will take place
LO3: Describe measures to control the volume of imports
LO4: Discuss exchange rate determination between the US dollar and the rand
LO5: Explain, with the aid of diagrams, the impact of changes in demand and supply of
dollars on the exchange rate
LO6: Briefly explain the three policy options for floating exchange rate regimens
LO7: Explain the significance of changes in the terms of trade
, LO1: Explain why countries trade NB
The world’s economies have become increasingly integrated - this process is called
globalisation
The extent of a country’s involvement in globalisation is called openness, or the
degree of integration into the international economy
The South African economy is described as an open economy
A country is self-sufficient (autarky) if it makes everything it consumes within the
borders of the country
But Adam Smith (An Inquiry into the nature and causes of wealth of nations (1776)
said it is better to specialise in a couple of goods and services and trade with other
countries because countries have different resources
Factors of production are not equally distributed amongst countries
i.e. South Africa has a lot of gold and platinum (natural resources) but not a lot of
computer factories
Therefore, South Africa specialises in mining gold and platinum, exporting the
surplus and importing computers (capital) from America, China and Japan
