A nation’s terms of trade determine the value of its exports relative to the price of its imports. Using price indexes, a nation can calculate its terms of trade and analyze changes in in it to determine whether imported goods are becoming relatively cheaper or more expensive compared to its exports.

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## Asymmetric Information as a Market Failure

When the buyers or sellers in a market do not know all the same information, it is possible that the equilibrium quantity will be greater than what is best for society. The existence of such “information asymmetry” can lead to market failures, as will be explained in this lesson.

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## Public Goods as a Market Failure

A market failure exists when the private sector fails to produce the socially optimal level of output (where marginal social benefit equals marginal social cost). An extreme form of market failure arises in the case of public goods, which, due to their characteristics, are not provided by the free market at all.

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## Calculating the Effects of a Specific, Indirect Tax

This lesson will apply linear equations to calculate the exact impact of an excise tax on cigarettes, determining the new equilibrium price and quantity, and calculating the amount of tax paid by consumers and by producers.

## Calculating Exchange Rates from Linear Equations

An exchange rate is simply an equilibrium price in a market for a currency, and like the prices of other goods, services and resources, a currency’s value can be calculated if the equations for supply and demand are known. This lesson will demonstrate how to calculate an equilibrium exchange rate from linear equations, and in part 2 demonstrate how an intervention by a central bank can lead to a change in demand or supply of a currency and thus trigger a change in its value.

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## Calculating Prices in different Currencies using Exchange Rates

If you know the exchange rates of two currencies, you can calculate the prices of goods in one country in another country’s currency. This lesson walks you through several problems in which calculations of different exchange rates allow us to determine how much goods and services in one currency will cost in terms of another.

## Indirect taxes’ (specific and ad valorem) Effects on Supply and the Supply Equation

An indirect tax may take one of two forms, a specific per unit tax or an ad valorem tax. This lesson explains (in two parts) the different impacts of these two types of tax on a good’s supply

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## Applications of Elasticity (PED, XED and YED)

Why does a knowledge of elasticity matter to businesses, the government and other stakeholders? This lesson explains the significance of price elasticity of demand, cross elasticity of demand and income elasticity of demand for producers and the government.

## Balance of Payments – Relationship between the Accounts

The final lesson on the balance of payments, in which we explain the relationship between the two accounts (current and financial) and explain why the two accounts must balance out to zero

## Balance of Payments – the Financial Account

Our lesson on the balance of payments continues by distinguishing between the different components of the financial (capital) account

## Balance of Payments – the Current Account

This lesson introduces the balance of payments and the components of the Current Account

## Positive Externalities of Production as a Market Failure

Sometimes the production of a good creates external benefits for a third party, but not often! Businesses do not want to externalize benefits, because this means they aren’t making MONEY from their goods and services! However, sometimes positive production externalities arise. This lesson will explain these situations, give examples, and introduce some of the possible government solutions.

## Protectionist Subsidies

A final tool available to government for promoting domestic production over imports is the protectionist subsidy. This less will explain, illustrate and evaluate the impact of a payment from the government to domestic producers meant to reduce imports and protect domestic jobs and firms.

This lesson also examines the economic justification for protectionism.