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:
“We must remain as close to the flowers, the grass, and the butterflies as the child is who is not yet so much taller than they are. We adults, on the other hand, have outgrown them and have to lower ourselves to stoop down to them. It seems to me that the grass hates us when we confess our love for it.—Whoever would partake of all good things must understand how to be small at times.”
—Friedrich Nietzsche (1844–1900)
“Listen to me, as if I were Sybaris barking with all his heads, at the gates of Hell, I will tell you where to take it. But don’t ... don’t open the box!”
—A.I. (Albert Isaac)
“I favor the policy of economy, not because I wish to save money, but because I wish to save people. The men and women of this country who toil are the ones who bear the cost of the Government. Every dollar that we carelessly waste means that their life will be so much the more meager. Every dollar that we prudently save means that their life will be so much the more abundant. Economy is idealism in its most practical terms.”
—Calvin Coolidge (1872–1933)