INTERNATIONAL ECONOMICS AND FINANCE

THE PROCESS OF GREATER INTERDEPENDENCE AMONG COUNTRIES AND THEIR CITIZENS. INCREASED INTEGRATION OF PRODUCT AND RESOURCE MARKETS ACROSS NATIONS VIA TRADE, IMMIGRATION AND FOREIGN INVESTMENT.

THE ABSENCE OF TRADE

• BY DAVID HUME A FAVORABLE TRADE BALANCE WAS POSSIBLE ONLY IN THE SHORT RUN, OVERTIME IT WOULD AUTOMATICALLY BE ELIMINATED.
• WHEN WE TRADE PRICE OF METALS GOES UP SO DOES VALUE OF MONEY AND SO DO PRODUCTS IN THAT COUNTRY, THEY WILL BECOME LESS ATTRACTIVE BECAUSE OF TRADE SURPLUS.

TRADE SHOULD BE CONTROLLED HEAVILY BY THE GOVERNMENT BECAUSE EXPORTS ARE GOOD AND IMPORTS ARE BAD. EXPORTS GIVE JOBS TO PEOPLE. GOVERNMENTS SHOULD PROMOTE EXPORTS AND REDUCE IMPORTS.

WHEN ONE NATION HAS AN ABSOLUTE COST ADVANTAGE (THAT IS USES LESS LABOR TO PRODUCE A UNIT OF OUTPUT) A NATION WILL IMPORT GOODS IN WHICH IT HAS AN ABSOLUTE COST DISADVANTAGE, AND WILL EXPORT GOODS IN WHICH IT HAS AN ABSOLUTE COST ADVANTAGE.

IF ONE COUNTRY HAS COMPARATIVE ADVANTAGE IN ONE GOOD, ANOTHER COUNTRY WILL HAVE C.A. IN ANOTHER GOOD.

Simply put, countries with plentiful natural resources will generally have a comparative advantage in products using those resources.

• THE EXCHANGE B/W NATIONS OF PRODUCTS OF DIFFERENT INDUSTRIES
• EX COMPUTERS AND AIRCRAFT TRADED FOR TEXTILES AND SHOES.

2 WAY TRADE IN A SIMILAR COMMODITY

MUCH LIKE A SALES TAX, IT IS EXPRESSED AS A FIXED PERCENT.

AN INCREASE IN THE PRICE OF A GOOD AS A RESULT OF EXPORT INCREASES THE REAL RETURN ON THE ECONOMIC RESOURCE THAT IS INTENSIVELY USED IN PRODUCTION OF GOOD AND LOWERS RETURN ON OTHER ECONOMIC RESOUCES.

A COMBINATION OF BOTH SPECIFIC AND AD VALOREM TARIFFS.

NOT ONLY THE NOMINAL TARIFF RATE, ON A FINISHED PRODUCT, BUT ALSO ANY TARIFF RATE APPLIED TO IMPORTED INPUTS THAT ARE USED IN PRODUCING THE FINISHED PRODUCT.

DESIGNED TO REDUCE THE AMOUNT OF IMPORTS ENTERING THE COUNTRY.

THESE ARE IMPOSED FOR THE PURPOSE OF GENERATING TAX REVENUES AND MAY BE PLACED ON EITHER EXPORTS OR IMPORTS.

EXPRESSED IN TERMS OF A FIXED AMOUNT OF MONEY.

INTERNATIONAL PRICE DISCRIMINATION. WHEN FOREIGN BUYERS ARE CHARGED LOWER PRICES THAN DOMESTIC BUYERS FOR AN IDENTICAL PRODUCTAFTER ALLOWING FOR TRANSPORATION COSTS AND TARIFF DUTIES.

A PHYSICAL RESTRICTION ON THE QUANTITY OF GOODS THAT MAY BE IMPORTED DURING A SPECIFIC TIME PERIOD


THE QUOTA GENERALLY LIMITS IMPORTS TO A LEVEL BELOW THAT WHICH WOULD OCCUR UNDER FREE TRADE CONDITIONS.

PRICE RATIO THAT IS AGREEABLE FOR THOSE WHO WANT TO TRADE.

FACTOR PRICE EQUALIZATION THEOREM

STOLPER SAMUELSON THEOREM

SPECIFIC FACTOR THEOREM

AFTER WWII K/L RATIO OF THE US WAS HIGHER THAN THAT OF UK THIS EXPLAINED WHY US WAGES WERE 4X HIGER THAT UK

UNIT LABOR COST= LABOR COST/PRODUCTIVITY OF WORKERS

COUNTRIES TRADE WHERE THEY HAVE SIMILAR TASTE

1- |X-M|/X+M

A DECREASE IN COST INDUSTRY-IF A COUNTRY LOWERS ITS PRICE IT CAN CAPTURE A LARGER MARKET IF THEY EXPAND OVERSEAS.

TERMS OF TRADE EFFECT- IMPORT PRICE INCREASES DETERIORATES THE COUNTRIES TERMS OF TRADE (FEWER IMPORTS FOR EXPORTS)

CONSUMPTION EFFECT- Q1-Q2

PRODUCTION EFFECT- Q2-Q2

REVENUE EFFECT

REDISTRIBUTION EFFECT

DEAD WEIGHT LOSSES (LOSS OF FREEDOM OF CHOICE LOSS OF INEFFICENCIES)

YOU HAVE A NET GAIN OF THE DEAD WEIGHT LOSSES

tariff x consumption + TARIFF X CONSUMPTIONS 1/2

TARIFF X PRDCTN W/O TARIFF + 1/2 TARIFF X 2

TARIFF X TARIFF IMPORT