A small open economy, abbreviated to SOE, is an economy that participates in international trade, but is small enough compared to its trading partners that its policies do not alter world prices, interest rates, or incomes. Thus, the countries with small open economies are price takers. This is unlike a large open economy, the actions of which do affect world prices and income.
For example; if the U.S. economy is in recession then the world economy is likely to suffer. On the other hand, a recession in a small open economy like Norway will likely not impact the world economy to a great extent.
The assumption of a small open economy is used in the study of macroeconomics to model a price-taking economy, allowing exogenous assumptions of the conditions in the rest of the world.
Famous quotes containing the words small, open and/or economy:
“There were none of the small deer up there; they are more common about the settlements. One ran into the city of Bangor two years before, and jumped through a window of costly plate glass, and then into a mirror, where it thought it recognized one of its kind.... This the inhabitants speak of as the deer that went a-shopping.”
—Henry David Thoreau (1817–1862)
“They never open their mouths without subtracting from the sum of human knowledge.”
—Thomas Brackett Reed (1839–1902)
“War. Fighting. Men ... every man in the whole realm is in the army.... Every man in uniform ... An economy entirely geared to war ... but there is not much war ... hardly any fighting ... yet every man a soldier from birth till death ... Men ... all men for fighting ... but no war, no wars to fight ... what is it, what does it mean?””
—Doris Lessing (b. 1919)