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Exploring International Economics: Theory, Trade Policies, and the Euro Area Crisis

This course, led by Dr. Stefan Kooths at BiTS Berlin for the winter term 2013/2014, offers a comprehensive overview of International Economics. It covers key concepts such as cross-border economic activities, the pure theory of international trade, inter-industry and intra-industry trade, the impacts of competition, and the debate between free trade and protectionism. Special emphasis is placed on the Euro Area Crisis case study, summarizing vital lessons learned and addressing fundamental questions about trade dynamics, including absolute and comparative advantages, production possibilities, and market impacts.

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Exploring International Economics: Theory, Trade Policies, and the Euro Area Crisis

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  1. International EconomicsPart 2 Dr. Stefan Kooths BiTS Berlin(winter term 2013/2014) www.kooths.de/bits-ie

  2. Outline • Introduction and Overview • Systemizing and Recording Cross-border Economic Activity • The Pure Theory of International Trade • General analysis of cross-border trade • Reasons for inter-industry trade:Absolute and comparative advantage • Causes and consequences of cost differences:The role of factor endowments and factor proportions • “Imperfect” competition and intra-industry trade • Trade Policy: Free Trade vs. Protectionism • Foreign Exchange Markets and the Open Macroeconomy • Case Study: The Euro Area Crisis • Summary: The Key Lessons Learnt

  3. Four basic questions about trade:Trigger, impact, national and international gains

  4. Categories of trade • Non-availability (trade in commodities) • Inter-industry trade (specialization) • Intra-industry trade

  5. Product markets: General assumptions, demand and supply, consumer and producer surplus, elasticities

  6. Opening of trade: National and international markets

  7. Arbitrage and free-trade equilibrium

  8. Terms of trade

  9. Four basic answers to trade

  10. Outline • Introduction and Overview • Systemizing and Recording Cross-border Economic Activity • The Pure Theory of International Trade • General analysis of cross-border trade • Reasons for inter-industry trade:Absolute and comparative advantage • Causes and consequences of cost differences:The role of factor endowments and factor proportions • “Imperfect” competition and intra-industry trade • Trade Policy: Free Trade vs. Protectionism • Foreign Exchange Markets and the Open Macroeconomy • Case Study: The Euro Area Crisis • Summary: The Key Lessons Learnt

  11. Adam Smith: Theory of absolute advantage • Maximum number of working hours: 10 (millions, billions, …) • Production and consumption possibilities without trade(self-sufficiency)? • Consumption possibilities with trade and specialization(division of labor)? Adam Smith (1723—1790) An Inquiry into the Nature and Causesof the Wealth of Nations, 1776

  12. David Ricardo:Opportunity cost and theorem of comparative advantage • Maximum number of working hours: 10 (millions, billions, …) • Production and consumption possibilities without trade(self-sufficiency)? • Any chance for mutually beneficial trade (division of labor)? David Ricardo (1772—1823) On the Principles of Political Economy and Taxation, 1817

  13. Production-possibility curve

  14. Exchange rate and terms of trade

  15. Mercantilism and unbalanced trade

  16. Complete vs. incomplete specialization: Constant vs. increasing marginal cost

  17. Production conditions, preferences and trade patterns

  18. Trade effects and gains from trade

  19. Country size and relative international winners

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