International Economics Guide
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This document discusses the importance of international economics. It provides three indicators that demonstrate the growth of international trade over the past 50 years: 1) exponential growth in world exports from 1948-2008; 2) the increasing share of world exports as a percentage of global GDP from 1970-2008; and 3) the growth of foreign direct investment (FDI) as a percentage of world GDP from 1980-2007. The document then outlines some key concepts in international economics like international trade, comparative advantage, and factors that drive international trade such as differences in technology, resources, demand, and economies of scale. It also lists some advantages and disadvantages of international trade.
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International Economics Guide
- 2. Importance of the International Economics Businesses, companies, firms Consumers, customers, buyers Governments Affected of what’s happening in the world!
- 3. Importance of the International Economics 1. Indicator: Growth of Exports in the World in the last 50 years Figure 1 - WorldExports, 1948–2008(in Billions of U.S. Dollars)
- 4. Importance of the International Economics 2. Indicator: Share of all exports as a % of the World GDP! Figure 2 - World Exports, 1970–2008 (Percentageof WorldGDP)
- 5. Importance of the International Economics 3. Indicator: The growth of FDI! Figure 3 - World Inward FDI Stocks, 1980–2007(Percentage of World GDP)
- 6. Division of International Economics International Trade Contents : International Finance Applies Microeconomic models to understand International Economy Applies Macroeconomic models to understand International Economy Contents :Supply and Demand Analysis Consumer behavior Market structures – monopoly... Relations-firms, customers, govs Freetrade policy or Protectionism? Gross domestic product - GDP Unemployment rates Inflation rates, exchange rates Trade balances Fixed or Floating exchange rate?
- 7. International Trade - Definition International trade is the exchange of goods and services between countries. Narrowsense Broader sense Only the exchange of goods between countries (import/ export of goods) In addition to exchange of goods, services (invisible import/export), capital movement and movement of peopleare included!
- 8. International vs. National Trade National Trade Buying& selling of goods andservices betweenparties withinthe national bounderiesof a country! International Trade Buying& selling of goods andservices betweentwo or more countries! Transactions are carried on with one currency No restrictions in the movement of goods, capital, people, services Mobilityof factors of production Using only national resourceswithin the country Limited marketsize Transactions are carried on with convertible currencies Restrictions in the movement of goods, capital, people and services Immobilityof factors of production Comparativeadvantage in natural resources – increased world output Large market size
- 9. Exercise 1 – Link the numbers with the letters! A Trade Balance 16 GDP, interest rates, unemployment, exchange rates, trade balance B Free Trade 17 Import of services C International Trade 14 Trade of goods/services inside the boundaries of the country D Supply 11 When the price of a product increases, the supply of it will increase as well E Demand 13 A specific person or a company that is the only one who supplies the market F GDP 12 Restricting imports from other countries through tariffs, quotas, regulations G FDI 1 Difference between a country's import and export over a certain time period I Import 7 A company that establishes foreign business operations in another country J Export 15 Supply and demand, monopoly, competition, consumer behavior…… K Law of Demand 6 Value of all the final goods/services produced annually in one country L Law of Supply 4 Amount of products that companies are willing and able to offer to the market M Protectionism 8 Goods or services that come to the market from abroad N Monopoly 2 Trade policy that doesn’t restrict imports or exports of goods or services O National Trade 5 Amount of products that consumers are willing and able to purchase P Microeconomics 3 Exchange of goods/ services between countries R Macroeconomics 10 When the price of a product increases, the demand for it will decrease S Invisible import 9 Sending goods or services to another country for sale
- 10. Exercise 1 – Solution! A Trade Balance 1 Difference between a country's import and export over a certain time period B Free Trade 2 Trade policy that doesn’t restrict imports or exports of goods or services C International Trade 3 Exchange of goods/ services between countries D Supply 4 Amount of products that companies are willing and able to offer to the market E Demand 5 Amount of products that consumers are willing and able to purchase F GDP 6 Value of all the final goods/services produced annually in one country G FDI 7 A company that establishes foreign business operations in another country I Import 8 Goods or services that come to the market from abroad J Export 9 Sending goods or services to another country for sale K Law of Demand 10 When the price of a product increases, the demand for it will decrease L Law of Supply 11 When the price of a product increases, the supply of it will increase as well M Protectionism 12 Restricting imports from other countries through tariffs, quotas, regulations N Monopoly 13 A speicifc person or a company that is the only one who supplies the market O National Trade 14 Trade of goods/services inside the boundaries of the country P Microeconomics 15 Supply and demand, monopoly, competition, consumer behavior…… R Macroeconomics 16 GDP, interest rates, unemployment, exchange rates, trade balance S Invisible import 17 Import of services
- 11. The reasons for International Trade A) Differences in Technology
- 12. The reasons for International Trade B) Differences in Resources’ quality and availability
- 13. The reasons for International Trade C) Differences in Demand
- 14. The reasons for International Trade D) Existence of Economies of Scale in Production
- 15. The reasons for International Trade E) Existence of Government Policies
- 16. The reasons for International Trade Real World is complex, with combinationof all those reasons!
- 17. Advantages & Disadvantages of International Trade Advantages Disadvantages Variety of products for locals Optimal use of resources Higher level of competition High productivity & IT New, large markets Specialization High tax revenue Stability in prices Dependency on other countries Small companies out of work Local unemployment Pollution, gas emissions Cultural differences Political instability, even war Complying to International law Resources depletion
- 18. HOMEWORK 1. Explain what the economies of scale means! Give an example! 2. On Internet, find more pro & cons for International trade!
Editor's Notes
- https://saylordotorg.github.io/text_international-economics-theory-and-policy/s04-01-the-international-economy-and-.html
- https://saylordotorg.github.io/text_international-economics-theory-and-policy/s04-01-the-international-economy-and-.html
- https://saylordotorg.github.io/text_international-economics-theory-and-policy/s04-01-the-international-economy-and-.html
- https://saylordotorg.github.io/text_international-economics-theory-and-policy/s04-01-the-international-economy-and-.html
- https://saylordotorg.github.io/text_international-economics-theory-and-policy/s04-01-the-international-economy-and-.html
- The modern world today is turning into a global village in which people’s activities go beyond local frontiers and local problems become global. International cooperation is especially developed in the economic field. Modern large companies produce not only for the domestic market, but also for the world market. Ex. Japanese companies set up plants in Britain, German investors buy shares on stock exchange in the Czech Republic and Hungary. People all over the world buy and consume Coca Cola and wear Nike sneakers. Tourists from different countries with their cameras cruised through famous winter/summer tourist centers. International trade is the exchange of goods and services between countries. Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries, or which would be more expensive domestically. International trade occurs when a firm exports goods and services to a consumer in another country. The need for international trade arises due to uneven distribution of natural resources, climatic conditions, growth rate, technology and professional management. This type of trade increases the number of goods that domestic consumers can choose from, decreases the cost of goods through increased competition, and allows domestic industries to ship their products abroad. While all of these effects seem beneficial, free trade isn't widely accepted across globe. In the contemporary conditions of economization, one cannot think of the economic development of a country as well as the world economy without reciprocal economic relationships between the countries. Therefore, the foreign trade represents an important activity within the area of trading and economy in general. The foreign trade deals with economic relations of a country with the other countries of the world in the field of sales (export) and purchasing (import) of commodities and in performing various services. So, in other words, the foreign trade includes all economic transactions of the relevant country with the other countries of the world. Thus, in contemporary international economic conditions, there cannot be an autarkic economy (closed within). Therefore, there is an objective need that any country, regardless of socio-economic system and the level of development, must have economic relations with the outside world. International trade represents a main part of the world‘s economy and can be defined in the narrow and broad sense of the word. In the narrow sense of the word the foreign trade implies export and import of goods, while in the wider sense of the word are included various services as well.
- The need for international trade arises due to uneven distribution of natural resources, climatic conditions, growth rate, technology and professional management. The five basic reasons why trade may take place are summarized below. https://saylordotorg.github.io/text_international-economics-theory-and-policy/s05-01-the-reasons-for-trade.html Advantageous trade can occur between countries if the countries differ in their technological abilities to produce goods and services. Technology refers to the techniques used to turn resources (labor, capital, land) into outputs (goods and services).
- https://saylordotorg.github.io/text_international-economics-theory-and-policy/s05-01-the-reasons-for-trade.html Reason for Trade #2: Differences in Resource Endowments Advantageous trade can occur between countries if the countries differ in their endowments of resources. Resource endowments refer to the skills and abilities of a country’s workforce, the natural resources available within its borders (minerals, farmland, etc.), and the sophistication of its capital stock (machinery, infrastructure, communications systems). Ex: Countries with warmer climate have tropical fruits that they can export to countries where the climate is colder. Ex: Only few countries in the world produce oil and all the others are forced to import it.
- https://saylordotorg.github.io/text_international-economics-theory-and-policy/s05-01-the-reasons-for-trade.html Reason for Trade #3: Differences in Demand Advantageous trade can occur between countries if demands or preferences differ between countries. Individuals in different countries may have different preferences or demands for various products. For example, the Chinese are likely to demand more rice than Americans, even if consumers face the same price. Canadians may demand more beer, the Dutch more wooden shoes, and the Japanese more fish than Americans would, even if they all faced the same prices. Trade can occur between countries if demands or preferences differ between them. Individuals in different countries may have different demands or preferences for various products. If two countries produce the same quantities of a certain product, and if people of the first country want that product in larger quantities than the people of the second country, then the first country has to import additional quantity of that product.
- https://saylordotorg.github.io/text_international-economics-theory-and-policy/s05-01-the-reasons-for-trade.html Reason for Trade #4: Existence of Economies of Scale in Production The existence of economies of scale in production is sufficient to generate advantageous trade between two countries. Economies of scale refer to a production process in which production costs fall as the scale of production rises. This feature of production is also known as “increasing returns to scale.”
- https://saylordotorg.github.io/text_international-economics-theory-and-policy/s05-01-the-reasons-for-trade.html Reason for Trade #5: Existence of Government Policies Government tax and subsidy programs alter the prices charged for goods and services. These changes can be sufficient to generate advantages in production of certain products. In these circumstances, advantageous trade may arise solely due to differences in government policies across countries.
- https://saylordotorg.github.io/text_international-economics-theory-and-policy/s05-01-the-reasons-for-trade.html In the real world, trade takes place because of a combination of all these different reasons. Each single model provides only a glimpse of some of the effects that might arise. Consequently, we should expect that a combination of the different outcomes that are presented in different models is the true characterization of the real world. Unfortunately, because of this, understanding the complexities of the real world is still more of an art than a science.
- https://environmental-conscience.com/international-trade-pros-cons/