International economics part 2
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International Economics Part 2. Dr. Stefan Kooths BiTS Berlin (winter term 2013/2014) www.kooths.de/bits-ie. Outline. Introduction and Overview Systemizing and Recording Cross-border Economic Activity The Pure Theory of International Trade General analysis of cross-border trade

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International Economics Part 2

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International EconomicsPart 2

Dr. Stefan Kooths

BiTS Berlin(winter term 2013/2014)

www.kooths.de/bits-ie


Outline

  • Introduction and Overview

  • Systemizing and Recording Cross-border Economic Activity

  • The Pure Theory of International Trade

    • General analysis of cross-border trade

    • Reasons for inter-industry trade:Absolute and comparative advantage

    • Causes and consequences of cost differences:The role of factor endowments and factor proportions

    • “Imperfect” competition and intra-industry trade

  • Trade Policy: Free Trade vs. Protectionism

  • Foreign Exchange Markets and the Open Macroeconomy

  • Case Study: The Euro Area Crisis

  • Summary: The Key Lessons Learnt


Four basic questions about trade:Trigger, impact, national and international gains


Categories of trade

  • Non-availability (trade in commodities)

  • Inter-industry trade (specialization)

  • Intra-industry trade


Product markets: General assumptions, demand and supply, consumer and producer surplus, elasticities


Opening of trade: National and international markets


Arbitrage and free-trade equilibrium


Terms of trade


Four basic answers to trade


Outline

  • Introduction and Overview

  • Systemizing and Recording Cross-border Economic Activity

  • The Pure Theory of International Trade

    • General analysis of cross-border trade

    • Reasons for inter-industry trade:Absolute and comparative advantage

    • Causes and consequences of cost differences:The role of factor endowments and factor proportions

    • “Imperfect” competition and intra-industry trade

  • Trade Policy: Free Trade vs. Protectionism

  • Foreign Exchange Markets and the Open Macroeconomy

  • Case Study: The Euro Area Crisis

  • Summary: The Key Lessons Learnt


Adam Smith: Theory of absolute advantage

  • Maximum number of working hours: 10 (millions, billions, …)

  • Production and consumption possibilities without trade(self-sufficiency)?

  • Consumption possibilities with trade and specialization(division of labor)?

Adam Smith (1723—1790)

An Inquiry into the Nature and Causesof the Wealth of Nations, 1776


David Ricardo:Opportunity cost and theorem of comparative advantage

  • Maximum number of working hours: 10 (millions, billions, …)

  • Production and consumption possibilities without trade(self-sufficiency)?

  • Any chance for mutually beneficial trade (division of labor)?

David Ricardo (1772—1823)

On the Principles of Political Economy and Taxation, 1817


Production-possibility curve


Exchange rate and terms of trade


Mercantilism and unbalanced trade


Complete vs. incomplete specialization: Constant vs. increasing marginal cost


Production conditions, preferences and trade patterns


Trade effects and gains from trade


Country size and relative international winners


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