ECON C181 FALL 2026

w/ Professor Lai

international trade topics

• Gains from trade, explaining patterns of trade, effects of government policies on trade

international finance topics

balance of payments, exchange rate determination, international policy coordination and capital markets

what is international economics about?

how nations interact through:

• trade of goods and services

• flows of money

• investment

Ricardo

• first to introduce comparative advantage

most important insight in international economics

gains from trade!

how could a country that isi the most/least efficient producer of everything gain from trade?

• Countries use finite resources to produce what they are most productive at (compared to their other production choices), then trade those products for goods and services that they want to consume.

• Countries can specialize in production, while consuming many goods and services through trade.

• Lower wage → less productivity and vice versa

countries selling goods and services to each other almost always generates mutual benefits

• When a buyer and seller engage in a voluntary transaction, both can be made better off

trade benefits countries by..

allowing them to export goods made with relatively abundant resources and imports goods made with relatively scarce resources.

when countries specialize..

• they may be more efficient due to larger-scale production.

countries may also gain by…

• trading current resources for future resources (international borrowing and lending) and due to international migration.

Trade is predicted to benefit countries as a whole in several ways, but…

trade may harm particular groups within a country

pattern of trade describes

who sells what to whom

Why some countries export certain products can stem from differences in:

• Labor productivity

• Relative supplies of capital, labor and land and their use in the production of different goods and services

policy makers affectr the amount of trade through:

• tariffs

• quotas

• export subsidies

• or through other regulations (ex., product specifications) that exclude foreign products from the market, but still allow domestic products.

tariff

a tax on imports or exports

quotas

a quanitity restriction on imports or exports

export subsidies

a payment to producers that export

international trade vs. finance

• International trade focuses on transactions involving movement of goods and services across nations

• International finance focuses on financial or monetary transactions across nations