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68 views

Slides Prepared by Thomas Bishop

Uploaded by

adin bleh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter 1

Introduction

Slides prepared by Thomas Bishop

Preview

What is international economics about?


Gains from trade
Explaining patterns of trade
The effects of government policies
on trade
International finance topics
International trade versus international finance

Copyright2006PearsonAddisonWesley.

12

What Is International Economics About?


International economics is about how nations interact
through trade of goods and services, through flows of
money and through investment.
International economics is an old subject, but it
continues to grow in importance as countries become
tied to the international economy.
Nations are more closely linked through trade in
goods and services, through flows of money, and
through investment than ever before.
Copyright2006PearsonAddisonWesley.

13

What Is International Economics


About? (cont.)
International trade as a fraction of the national
economy has tripled for the US in the past
40 years.
Compared to the US, other countries are even
more tied to international trade.

Copyright2006PearsonAddisonWesley.

14

What Is International Economics


About? (cont.)

Copyright2006PearsonAddisonWesley.

15

What Is International Economics


About? (cont.)

Copyright2006PearsonAddisonWesley.

16

Gains from Trade

Several ideas underlie the gains from trade


1.

When a buyer and a seller engage in a voluntary


transaction, both receive something that they
want and both can be made better off.

Norwegian consumers could buy oranges through


international trade that they otherwise would have a
difficult time producing.

The producer of the oranges receives income that it can


use to buy the things that it desires.

Copyright2006PearsonAddisonWesley.

17

Gains from Trade (cont.)


2. How could a country that is the most (least) efficient
producer of everything gain from trade?

With a finite amount of resources, countries can use those


resources to produce what they are most productive at
(compared to their other production choices), then trade
those products for goods and services that they want to
consume.

Countries can specialize in production, while consuming


many goods and services through trade.

Copyright2006PearsonAddisonWesley.

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Gains from Trade (cont.)


3. Trade is predicted to benefit a country by making it
more efficient when it exports goods which use
abundant resources and imports goods which use
scarce resources.
4. When countries specialize, they may also be more
efficient due to large scale production.
5. Countries may also gain by trading current
resources for future resources (lending
and borrowing).
Copyright2006PearsonAddisonWesley.

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Gains from Trade (cont.)


Trade is predicted to benefit countries as a
whole in several ways, but trade may harm
particular groups within a country.

International trade can adversely affect the owners


of resources that are used intensively in industries
that compete with imports.

Trade may therefore have effects on the distribution


of income within a country.

Conflicts about trade should occur between groups


within countries rather than between countries.

Copyright2006PearsonAddisonWesley.

110

Patterns of Trade
Differences in climate and resources can explain why
Brazil exports coffee and Australia exports iron ore.
But why does Japan export automobiles, while the US
exports aircraft?
Differences in labor productivity may explain why
some countries export certain products.
How relative supplies of capital, labor and land are
used in the production of different goods may also
explain why some countries export certain products.

Copyright2006PearsonAddisonWesley.

111

The Effects of Government Policies


on Trade
Policy makers affect the amount of trade through

tariffs: a tax on imports or exports,

quotas: a quantity restriction on imports or exports,

export subsidies: a payment to producers that export,

or through other regulations (e.g., product specifications)


that exclude foreign products from the market, but still allow
domestic products.

What are the costs and benefits of these policies?

Copyright2006PearsonAddisonWesley.

112

The Effects of Government Policies


on Trade (cont.)
Economists design models that try to measure the
effects of different trade policies.
If a government must restrict trade, which policy
should it use?
If a government must restrict trade, how much should
it restrict trade?
If a government restricts trade, what are the costs if
foreign governments respond likewise?

Copyright2006PearsonAddisonWesley.

113

International Finance Topics

Governments measure the value of exports and imports, as well


as the value of international financial capital that flows into and
out of their countries.

Related to these two measures is the measure of official


settlements balance, or the balance of payments: the balance of
funds that central banks use for official international payments.

All three values are measured in the governments national


income accounts.

Copyright2006PearsonAddisonWesley.

114

International Finance Topics (cont.)


Besides international financial capital flows and the
official settlements balance, exchange rates are also
an important financial issue for most governments.

Exchange rates measure how much domestic currency can


be exchanged for foreign currency.

They also affect how much goods that are denominated in


foreign currency (imports) cost.

And they affect how much goods denominated in domestic


currency (exports) cost in foreign markets.

Copyright2006PearsonAddisonWesley.

115

International Trade
Versus International Finance
International trade focuses on transactions
of real goods and services across nations.

These transactions usually involve a physical movement


of goods or a commitment of tangible resources like
labor services.

International finance focuses on financial or monetary


transactions across nations.

For example, purchases of US dollars or financial assets


by Europeans.

Copyright2006PearsonAddisonWesley.

116

A Road Map
International trade topics

International trade theory (chapters 27)

International trade policy (chapters 811)

International finance topics

Exchange rates and open economy macroeconomics


(chapters 1217)

International macroeconomic policy (chapters 1822)

Copyright2006PearsonAddisonWesley.

117

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