INTERNATIONAL ECONOMICS

International Trade

Trade between people or firms in different countries.
Real transactions in the international economy

Export

Sale of goods & services abroad

Import

Purchase of good & services abroad

Net exports

Value of goods & services sold abroad minus the goods & services brought from the rest of the world

Four Specific Reasons Why a Country could gain from Trade:
Mutual Gains from Voluntary Exchange of Existing Goods

Four Specific Reasons Why a Country could gain from Trade:
Increased competition

Four Specific Reasons Why a Country could gain from Trade:
Division of Labor

Four Specific Reasons Why a Country could gain from Trade:
Better use of skills and resources in different countries

Comparative Advantage

Situation in which a person or a country can produce one good more efficiently than another good in comparison in another person or country

Comparative Advantage

Lower opportunity cost

Absolute advantage

Situation in which a person or country is more efficient at producing a good in comparison with another person or country

Absolute advantage

Fewer resources

Opportunity cost

Value of the next best forgone alternative

Opportunity cost

Give a way to define comparative advantage
A person with a lower opportunity cost of producing a good than another person has a comparative advantage in that good

Specializing or Specialization

enables nations to reduce the cost of obtaining the goods and services by taking its comparative costs

International trade

Specialization and _______ increase the productivity of nation’s resources and allow for greater total output than would otherwise be possible

Transportation technology

AGENTS OF TRADE GROWTH
High transportation costs are barrier to any type of trade particularly among traders who are distant from one another

Communication technology

AGENTS OF TRADE GROWTH
Dramatic improvements in communication technology have also advanced worldwide

Communication technology

AGENTS OF TRADE GROWTH
Directly link traders around the world enabling exporters to access overseas markets to carry out trade deals

General decline in Tariffs

AGENTS OF TRADE GROWTH
Many nations still maintains barriers to free trade but on average, tariffs have fallen significantly, thus increasing international trade

World Price

Price that equates the quantities supplied and demanded globally

Gains of Trade:
Improvements in income based on comparative advantage

Gains of Trade:
Production added output

Gains of Trade:
Satisfaction owning to the exchange of goods or service
Improved option

Goods & services flows “trade flows”

Financial linkages:
The country’s export goods and services to other nations and import goods from other nations

Capital and labor flow “resource flow”

Financial linkages:
The country’s production facilities, capital in foreign countries and foreign firm’s establishment in the country. Labor also moves between nations

Information and technology flow

Financial linkages:
The country transmits information to other nations about their domestic products, prices, interest rates, and investment opportunities and receives such information abroad

Financial flow

Financial linkages:
The transfer of money between countries for several purposes:
Paying imports
Buying foreign assets
Providing foreign aid

trade flows

Goods & services flows

resource flow

Capital and labor flow