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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

International EconomicsPart 2

Dr. Stefan Kooths

BiTS Berlin(winter term 2013/2014)

www.kooths.de/bits-ie


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


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






Outline1
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
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
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





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