LESSON 1

• International trade is a field in economics that applies microeconomic models to help understand the international economy
• Benefits of international trade:

  • Exporting goods whose inputs of production are locally abundant
  • Importing goods whose inputs of production are locally scarce
  • Allows countries to specialize in producing fewer goods for greater efficiencies
  • Includes trade of tangible goods, international migration, international borrowing, and international lending
• Knowing how much to trade is crucial in international economics
• Basic supply-and-demand analysis of international markets
• Firm and consumer behavior in international trade
• Market structures:

  • Perfectly competitive markets
  • Oligopolistic markets
  • Monopolistic markets
• Effects of market distortions in international trade
• International policy coordination:

  • Sovereign nations choose their economic policies
  • Economic policies of one country affect others in an integrated world economy
  • Variances in goals between countries can lead to conflicts of interest
  • Lack of coordination in policies among countries with similar goals can result in losses
• International economics: trade and money

  • Conflict of interest due to variances in goals between countries
  • Importance of creating harmony among international trade and monetary policies without a world government
• International trade analysis:

  • Focuses on real transactions in the international economy
  • Includes physical movement of goods and tangible commitment of economic resources
  • Example: Conflict between the United States and Europe over Europe's subsidized exports of agricultural products
• International monetary analysis:

  • Focuses on the monetary side of the international economy
  • Includes financial transactions like foreign purchases of US dollars
  • Example: Difference of opinion on whether the dollar should float freely in the market or be controlled by government intervention
• Trade theories:

  • Heckscher-Ohlin model
  • Specific-factors model
  • Ricardian model
• International organizations:

  • GATT (General Agreement on Tariffs & Trade)
  • International Trade Organization
  • International Monetary Fund
  • World Bank