Welcome to EC 382: International Economics By: Dr. Jacqueline Khorassani

1. Welcome to EC 382: International EconomicsBy:Dr. Jacqueline Khorassani Class 1: Week One

2. Week One: Day one • Tuesday, September 414:00-14:50AC 202

3. What should you do? • Study the Course Contract available on line at www.marietta.edu/~khorassj • Click on Fall 2007 Courses • Click on EC 382: International Economics • Click on Course Contract • It is in Microsoft Word format • Make sure you understand the contract • Ask me questions via an email to khorassj@marietta.edu or jacqueline.khorassani@nuigalway.ie .

4. Highlights of the Contract • What is this course about? • Is an international transaction different from a transaction within a nation? • In many ways an international trade is no different from an exchange within a nation. • Yet, international exchange raises new and different concerns. Why?

5. International trade occurs between independent nations • The auto shipments from the USA to Ireland may be disrupted if the Ireland’s government imposes a new quota against American cars. • Also, a sharp depreciation in the US dollar against the euro will suddenly make American cars cheaper to Irish consumers. Neither of the above events can happen within a given country.

6. Means of Communication • Class • Tuesdays: 14:00-14:50 in AC202 • Wednesdays: 11:00-11:50 in Tyndall Theatre • Wednesdays: 15:00-15:50 in AC201 • Note: No Class ob Thursday • My website • www.marietta.edu/~khorassj • Email • khorassj@marietta.edu • Jacqueline.khorassani@nuigalway.ie

7. Means of Communication 4. Office • 310 St. Anthony’s • Phone: 091- 493105 (office) • Hours • Mondays: 14:00-15:00 Tu & Th: 12:00-13:00 Wednesdays: 13:00-14:00 & by appointment. 5. Balckboard (More on this later.) http://balckboard.nuigalway.ie

8. My Teaching Philosophy • I am not a lecturer • In other words, I am not going to be a transmitter of knowledge. • I am a designer, a conductor, a coach • You are not knowledge sponges • You are knowledge constructors

9. My tasks • Design a map that will lead you toward the construction of your knowledge. • Study guides will be posted on my website in the beginning of each week. • Help you figure out how to ask the right questions when you feel lost. • Ask you questions in an attempt to find out if you are on the right track. • Give clear and meaningful answers to your questions. • PowerPoint slides of the classroom activities will be posted on my website at the end of each week.

10. Your tasks • Study and follow the map • Ask questions when you feel lost • A dumb question is better than no question • Respond to my questions • Be prepared to be wrong sometimes • This is not a test.

11. Our joint task • is to build a learning environment in which we feel free and comfortable to express our thoughts; to respectfully disagree with each other at times; and to learn from each other.

12. Texts • International Economics by Sawyer and Sprinkle, Prentice Hall, 2006 • & • Financial Times

13. Examinations • 2 exams • Exam 1: Wednesday, October 10, 15:00 – 16:00 (20% of grade) • Exam 2: Will be determined by the University later (60% of grade)

14. Just in time Assignments • 20% of course grade

15. Study the textbook’s Preface • Believe me it is not a waste of time to read the Preface of a book • Ask me questions via an email.

16. Check out the textbook resources at http://www.prenhall.com/sawyer/

17. Chapter 1 (If don’t ask questions, I assume that you don’t need my help.) • Macro/Microeconomics • How are they different from each other? • Micro: studies the production and consumption of various goods and services and how particular industries and markets work • Macro: studies the operation of the entire economy and the factors that determine the economy’s total output

18. Week One: Class 2 • Wednesday September 5 • 11:10- 12:00 • Tyndall

19. I received questions; thank you. • About the textbook • Unavailable for 2 weeks?!! • Does the library have it? • If not, I will leave a copy at the Media Services in this building (Printing Services) this afternoon.

20. I received questions; thank you. • About the purpose of a study guide • You don’t need to turn in anything • You just do what it says • If you don’t understand something or have questions, ask me • Beginning in week 2 • If I don’t get any questions on a certain topic, I may not discuss it in class. But you are responsible for that topic.

21. I received questions; thank you. • The book’s resources online • What are they good for? • Sample questions • Study guide • I will not directly refer you to the book’s online resources.

22. International Economics • What is it all about? • Explains patterns of international transactions • Is free trade good or bad? • Are trade barriers good or bad? • Is it good to have for the euro to appreciate or depreciate against dollar?

23. Is this Macro or Micro topic? • The effect of a trade barrier on the overall unemployment rate in Ireland. • Macro • The effect of import quotas on the production of cars in the US • Micro • International Economics requires both Micro and Macro economic analysis

24. GDP • What does it measure? • Market value of all final goods and services produced within a country in a given period of time • Why do we measure GDP? • It is a measure of output, income (with some adjustments) and economic well being.

25. GDP • What are the components of GDP? • GDP = C + I + G + (X – M) • What is per capita GDP? • GDP divided by population

26. GDP per Capita Population (millions) % of World Population Total GDP (millions of $) % of World GDP Low-Income Economies $451 2,494.6 40.2% $1,123,865 3.5% Middle-Income Economies $1,877 2,737.8 44.2% $5,139,306 15.9% High-Income Economies $26,964 966.2 15.6% $26,052,812 80.6% Source: World Bank, 2004 The Output of the World Economy Table 1.1: Distribution of World Population and Economic Output, 2002

27. What is the relationship between a nation’s income and its exports? Imports? • Empirical Evidence: high income economies import and export more than middle and low income economies .

28. Imports (millions of $) % of World Total Exports (millions of $) % of World Total Low-Income Economies 3.0% $211,197 3.3% $197,606 Middle-Income Economies $1,364,003 20.7% $1,447,025 22.4% High-Income Economies $5,028,663 76.3% $4,796,707 74.3% $6,454,929 World Total $6,590,272 Source: World Bank, 2004 Imports and Exports of Goods in the World Economy Table 1.2: Distribution of Imports and Exports of Merchandise in the World Economy (2002)

29. What are the multinational corporations? • Companies that own, control, or manage production and distribution facilities in several countries

30. What is the difference between foreign portfolio investment and foreign direct investment? • portfolio investment • The purchase of financial assets • For example, stock and bonds, in a foreign country • direct investment • A domestic corporation’s purchase of real assets • For example, plant and equipment, in a foreign country

31. Week One: Class 3 • 15:10-16:00 • AC 201 • I will leave a copy of Chapters 1-3 at the Media Services in this building (Printing Services) tomorrow. • No class tomorrow • Don’t miss our class next week • There is going to be an in class assignment.

32. What is foreign exchange market? • The market where currencies are bought and sold • Exchange Rate • The price of one currency in terms of another currency • Today, €1= $1.4 • What if tomorrow €1= $1.8 • Dollar depreciated and euro appreciated

33. Chapter 2 • What are the similarities and the differences between international and interregional trade? • Similarities • Florida can produce oranges cheaper than Ohio so it sells oranges to Ohio. • Both states benefit • Italy can produce wine cheaper than Ireland so it sells wine to Ireland. • Both countries benefit

34. Differences • Orange producers in Ohio lose their jobs • No so bad??? • Irish wine producers lose their jobs • Bad???

35. Questions (Copy these questions please.) • Why do the two nations trade? • How does the trade affect the price in each country? • Is everyone better off? • What is the effect of trade • Consumers in each nation? • Producers in each nation?

36. Price of Cloth Price of Cloth SU.S. E PU.S. SINDIA j P1 i P1 g h Imports Exports p* c d p* a b n P2 r P2 k m PINDIA F DU.S. DINDIA Q1 QU.S. Q2 Quantity of Cloth Q3 QINDIA Q4 Quantity of Cloth U.S. Cloth Market India’s Cloth Market Trade in an Individual Product Figure 2.1: The Effects of Trade on Production, Consumption, and the Price of Cloth

37. Let’s re-visit the questions • Why do the two nations trade? • How does the trade affect the price in each country? • Is everyone better off? • What is the effect of trade • Consumers in each nation? • Producers in each nation?

38. Mercantilism (1700s) • A country should discourage imports and encourage exports in order to increase its wealth • Tariffs and quotas were used to restrict imports to cause a “favorable trade balance” • Trade is a zero sum activity • Exporters gain, importers lose

39. Adam Smith (1723 (Scotland)-1790) • Trade is not a zero sum game • Both exporters and importers win • Nobody forces you to import • If you import on your free will then you must gain from it.

40. What does absolute advantage mean? • If India can produce one yard of cloth using fewer resources than the US, then India has absolute advantage in production of cloth • Or • If India uses all of its resources it can produce more cloth than the US, then India has absolute advantage in production of cloth