International Economics
Part 2
Dr. Stefan Kooths
BiTS Berlin
(winter term 2013/2014)
www.kooths.de/bits-ie
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Outline
1. Introduction and Overview
2. Systemizing and Recording Cross-border Economic Activity
3. The Pure Theory of International Trade




4.
5.
6.
7.
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
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Four basic questions about trade:
Trigger, impact, national and international gains
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Categories of trade
 Non-availability (trade in commodities)
 Inter-industry trade (specialization)
 Intra-industry trade
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Product markets: General assumptions, demand and supply,
consumer and producer surplus, elasticities
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Opening of trade: National and international markets
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Arbitrage and free-trade equilibrium
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Terms of trade
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Four basic answers to trade
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Outline
1. Introduction and Overview
2. Systemizing and Recording Cross-border Economic Activity
3. The Pure Theory of International Trade




4.
5.
6.
7.
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
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Adam Smith: Theory of absolute advantage
Working hours
per ton of wheat
Working hours
per barrel of wine
Country A
2
5
Country B
2,5
4
» 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 Causes
of the Wealth of Nations, 1776
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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David Ricardo:
Opportunity cost and theorem of comparative advantage
Working hours
per ton of wheat
Working hours
per barrel of wine
Country A
2
5
Country B
1
4
» 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
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Production-possibility curve
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Exchange rate and terms of trade
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Mercantilism and unbalanced trade
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Complete vs. incomplete specialization:
Constant vs. increasing marginal cost
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Production conditions, preferences and trade patterns
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Trade effects and gains from trade
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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Country size and relative international winners
KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 2
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