International Economics - -The effects upon economic activity of international differences in productive resources and consumer preferences and the
... [Show More] institutions that affect them.
Explains the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration, economies of scale, etc.
Science of cross-border relationships between countries
-Mercantilism - -16th-17th Century
When is a country right? When it owns a lot of gold (Bullionism)
How does a country get rich? Promote exports, discourage imports (conquest or mercantilist policy; mercantilism on trade)
-Classic Theory of Trade - -Adam Smith, The Wealth of Nations (1776)
-> explains international trade by referring to absolute advantages (in cost)
David Ricardo, On the Principles of Political Economy and Taxation (1817)
-> explains international trade by referring to comparative advantages (relative cost)
Models based on differences in technology between countries
Tech differences -> labor productivity differences (labor is the only production factor for both Ricardo and Smith)
-How are costs defined in the classical framework? - -Opportunity costs
-Absolute Advantages - -In economics, the principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources.
-Comparative Advantages - -Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries
Exists if a country faces lower opportunity cost while producing product X than another country
-Difference between absolute and comparative advantage - -Comparative advantage refers to the ability of a party to produce a particular good or service at a lower opportunity cost than another. Even if one country has an absolute advantage in producing all goods, different countries could still have different comparative advantages.
-Opportunity Cost - -The opportunity cost of a decision is the value of the next best alternative foregone as a result of the decision. For example, consider an individual who can buy either a book or a DVD with his money. The opportunity cost of buying the book would be the DVD, since he has to forego the DVD in order to buy the book.
-Trade (Comparative Advantage) - -If we allow trade:
->Specialization will automatically occur
->Total production will increase [Show Less]