Surplus on Current Account
Categories: Econ, Accounting
There are two kinds of countries in this world: those who lend, and those who borrow.
Of course, many nations do both, but it’s the “net” factor that counts. If you’re lending more than you’re borrowing, you’re a net lender. Vice versa, and you’re a net borrower.
When there’s a surplus on the current account, it means a nation is a net lender to the rest of the world. If a country was in net debt, well...no surplus or net lender status for you, buddy.
The current account of a country is the net imports and exports over a certain timeframe, say, a month or a year...as well as earnings from foreign investments and transfer payments. When a country is getting paid more than it's lending out (paid via money from exports, foreign investment returns, and transfer payments like foreign aid), the current account goes up. When that incoming cash is more than the outgoing cash (lost cash from imports, foreign investors’ investment returns, and outgoing foreign aid), you’ve got a surplus.
While the cash going in and out is coming from many places, trade is no doubt the largest factor, and the one that usually tips the net current account scale. Thus, high export countries usually have a surplus on their current accounts. Think: China and their manufactured goods (though that’s changing), and Germany and Japan with their automobiles. Everyone wants what they’re selling.
While having a surplus on your current account sounds brag-worthy, it’s not necessarily. For instance, it could indicate that your domestic economy is sluggish.
Everyone’s thinking it...so...where does the U.S. fall in the grand scheme of things?
The U.S. is faaaaar away from a surplus. Pretty much the farthest of all countries, being a net borrower. That’s partially because everyone wants U.S. dollars, and because U.S. consumers want foreign goods more than the rest of the world wants U.S. goods. Meanwhile, Germany is king of current account surplus, with China not far behind...and Russia is well in the surplus as well.
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Econ: What are Consumer Surplus, Produce...9 Views
And finance Allah shmoop What Our consumer surplus producer Surplus
and Alec A tive efficiency shmoop in economics Surplus happens
when you're getting more than you bargained for When the
sweet smell of surplus is in the air it means
somebody got a great deal either a consumer or a
producer If you're a consumer surplus means you paid less
for a good or service then you would have been
willing to pay For example let's look at a Karlis
pregnant city dweller whose water just broke Yeah since the
baby's saying It's Hypo time A mom's willing to pay
a lot of money for a new uber to the
hospital She might even be willing tio by the uber
car there She really rather not have her baby's first
sight to be that of a rat running into a
gutter with an entire slice of pizza sending the wrong
message You know but since it's just a normal of
uber ride on a normal day in normal time well
she ends up paying a normal price for that uber
ride to the hospital because the benefit she's getting is
much higher than the price she'd be willing to pay
for that ride She's reaping a consumer surplus on that
ride Well consumer surpluses that area on your typical supply
and demand curve right under the demand curve there but
above where the two curves cross like right in there
Which makes sense if you think about it the demand
curve which is also the marginal utility curve represent what
you're willing to pay for a thing right What seems
fair Anything above that line has you saying Hey man
what a rip off No way No way I'm paying
that much while anything below that line has you saying
Wow What a great deal Too good to pass up
if you ask me if your producer Well surplus means
you can get away with selling a good or service
for a higher price than you would have been willing
to sell it for Cha Ching Take virtual reality headsets
Well the first V R headsets were the only ones
on the market making them rare and you know super
hi tech gyms The sole producer of the V R
headsets capitalized on the V R hype and the rarity
of it all by setting prices is high much higher
than the price they needed to sell them at in
order to cover all the cost that went into making
them In layman's terms we might call this a price
mark up But people were willing to pay that higher
price to look like a blindfolded fool and enter other
realms So that's what the producers charged wouldn't you On
the supply and demand graph producer surpluses the area above
the supply curve which is also the marginal cost curve
but below where the two curves cross right in there
The actual line of supply curve is what producer willing
to sell their product for they won't sell anything below
the line since that would mean they wouldn't even be
covering their marginal cost like they'd be losing money on
every sale But selling above the line well thats extra
profits The higher producers can set their prices above their
marginal costs assuming consumers are willing to pay for it
Well the more profits the producer surplus They're reaping what
happened when Mohr companies started to make Mohr v R
headsets and there was competition in the marketplace with Mohr
v R Options on the market v R Headsets became
less rare When things to buy become more common prices
go down Yeah whereas one company making V R headsets
used to enjoy the make it rain monopoly power of
price setting multiple companies making V R headset makes the
market competitive When consumers air shopping around in comparing prices
producers turning to price takers that is they can no
longer sell their V R Headset said Well pretty much
any price they want at such high prices because consumers
will just go buy the same thing cheaper elsewhere Competition
makes producer surplus shrink and shrink away If the V
R headset market was perfectly competitive which would be all
the our headsets made by all producers were exactly the
same Well then producer surplus would pretty much completely disappear
meaning it was a total commodity market when both consumers
and producers feel like they're getting a fair shake or
a fair trade while money for v R headsets In
this case we have what's called Alec a tive efficiency
Well the elegant efficient point is we're supplying demand or
marginal cost and marginal benefit Cross consumers feel like they're
getting what they paid for not getting ripped off and
not getting a deal Producers are no longer rolling around
in beds covered in producer surplus money but they're not
losing money either When things were sold at analogue a
tive efficient level everybody's getting what they paid for no
more no less All the value is fair Which yeah
means that where their surplus there's inefficiency right If either
consumers or producers feel like they're getting a deal a
surplus while then the market isn't efficient Adam Smith's invisible
hand does its best to slap surplus out of the
markets with competition Making things fair for both sides doesn't
always work out that way But while the invisible hand 00:04:38.14 --> [endTime] you know does what it can