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International Economics Part 2

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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  1. International EconomicsPart 2 Dr. Stefan Kooths BiTS Berlin(winter term 2013/2014) www.kooths.de/bits-ie

  2. 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

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

  4. Categories of trade • Non-availability (trade in commodities) • Inter-industry trade (specialization) • Intra-industry trade

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

  6. Opening of trade: National and international markets

  7. Arbitrage and free-trade equilibrium

  8. Terms of trade

  9. Four basic answers to trade

  10. 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

  11. 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

  12. 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

  13. Production-possibility curve

  14. Exchange rate and terms of trade

  15. Mercantilism and unbalanced trade

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

  17. Production conditions, preferences and trade patterns

  18. Trade effects and gains from trade

  19. Country size and relative international winners

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