International economics

What are the two main topics of IE ?

International trades and International finance

What theory comes from Smith ? How is it useful ?

Absolute advantages that indicate in which product a country should specialise.

Define Labor productivity

Labor productivity is in fact the production per hour of a good

Explain the theory of Smith

A country should specialise its production in the good which has the biggest labor productivity in comparison to the other countries.

Define opportunity cost

The opportunity cost indicate the amount of good A you have to sacrifice in order to produce one good B for exemple.

Explain the theory of Ricardo

Comparative advantages : model with 2 countries and 2 products. The countries should specialise in the product that has the lowest opportunity cost. So in fact, in the product that your the more efficient to produce while sacrificing less other products

How to calculate an opportunity cost ?

We assume that you can’t produce two products at the same time and base you calculation on the labor productivity.

Then : OC = Productivity of A/Productivity of B when Productivity of A and B are an amount of goods produced in an hour.

Define PPC

Product Possibility Curve : Curve that shows the max production a country can do with full employment and max productivity.

What information is showed by the PPC ?

The relative price of the product (en fonction du l’autre bien)

What is international price ?

Its the price of a product in a barter situation according to another product