经济学 ii ：世界经济 economics 2: the world economy. for information concerning this course,...

经济学经济学 IIII ：世界经济：世界经济Economics 2: The World Economy

For information concerning this course, including PowerPoint slides and a course syllabus, please visit my website at:

http://www.angelfire.com/ok5/osucowboytc

WebpageWebpage

What is the purpose of this What is the purpose of this course?course?

To introduce you to the World Economy To focus on the key features of the

global economic environment To advance economic concepts and

allow you to develop research and analytical skills

To gain an understanding of trade, international payments, exchange rates and economies undergoing change

Outcomes of this courseOutcomes of this course

Outcome 1 – Explain international trade and the role of trade organizations

Outcome 2 – Analyze the balance of payments and exchange rate regimes

Outcome 3 – Evaluate world economies

AssessmentAssessment

There will be one open assessment to develop your research skills

You will be required to present a portfolio of evidence either in the form of a written report or in oral presentation

A written report will require a response of 1000-2000 words, where an oral presentation should be 15 minutes in length

A Global EconomyA Global Economy

You buy a computer in the United States The components of the computer were

designed in Japan The components were manufactured

in China When you call for service, your call is

transferred to a customer service agent in India

Common Mistakes in Common Mistakes in International TradeInternational Trade

"Trade is zero-sum" - trade can bring benefits to both partners

"Imports bad, exports good" - if you buy nothing from other countries, they have no income to buy from you

"Tariffs and quotas save jobs" - cutting imports makes it harder to export, so other jobs are lost

Reasons for TradeReasons for Trade

Main objective of any nation is to generate high and rising standard of living

No nation can efficiently make everything itself

International trade allows countries to focus on producing what they make efficiently

Sectors open to competition become more efficient and productive

Reasons for TradeReasons for Trade

Overall standard of living is higher Access to raw materials & energy not

available at home Access to goods & components made

less expensively elsewhere Access to financing and investment

not available at home

Results of TradeResults of Trade

Overall standard of living is higher Access to raw materials & energy not

available at home Access to goods & components made

less expensively elsewhere Access to financing and investment

not available at home

Results of Trade (cont.)Results of Trade (cont.)

Other impacts - good & bad Slows inflationary pressures at home Limits domestic wage increases Makes economy vulnerable to external

disturbances Limits impact of domestic fiscal policy

on economy

A Look at Economies of the A Look at Economies of the WorldWorld

Rank Economy $ US Millions

1 United States 10,416,818

2 Japan 3,978,782

3 Germany 1,976,240

4 United Kingdom 1,552,4375 France 1,409,604

6 China 1,237,145

7 Italy 1,180,921

8 Canada 715,692

9 Spain 649,792

10 Mexico 637,205

Gross National ProductGross National Product

国民生产总值 This means that the income of all citizens o

f the country is included and the income of all non-citizens is excluded

Used by the United Nations to measure the wealth and poverty of nations

Per capita = Total GNP\Total Population EX. GNP = $ 1,000,000,000

Pop = ÷ 1,000,000GNP per capita = $ 1,000

Gross Domestic ProductGross Domestic Product

Many economists consider GNP a poor measure of wealth

They prefer a measure called GDP ( 国内生产总值 )

GDP includes all income within a country and excludes all income outside a country, regardless of who earns the income

GDP per capita is calculated the same as GNP per capita

GDP’s of the WorldGDP’s of the World

Rank Country GDP Per Capita US $

1 Liechtenstein 42,416

2 Switzerland 42,416

3 Japan 41,718

4 Luxembourg 35,109

5 Norway 33,734

6 Denmark 33,191

7 Germany 29,632

8 Austria 29,006

9 Belgium 26,582

10 Monaco 26,470

Exports of goods and services as Exports of goods and services as percent of Gross Domestic Product, percent of Gross Domestic Product,

19991999

Country Exports as percent of GDP

Netherlands 55%Norway 41Canada 39Mexico 31South Korea 31United Kingdom 29Germany 25France 25United States 12Japan 10

Outcome 1Outcome 1Section 1

A “Global” WorldA “Global” World

Free TradeFree Trade

What is Free Trade?

Trading of goods between countries without any barriers to the transaction

Allows countries to obtain goods that they do not produce or do not produce efficiently


UK

WestIndies

Canada

NigeriaOil

CoalMachinery

Wheat


UK

WestIndies

Canada

NigeriaOil

CoalMachinery

WheatCorn


Assumptions No barriers of any kind would be

imposed upon entry of the goods to any market

What are some types of barriers? The selling price would be the

“economists price” (the goods would be sold at a price which covers all the costs relating to producing and transporting the goods plus allow for what economists term “normal profit”

Free Trade is an idealized situation that rarely, if ever, really occurs

Absolute AdvantageAbsolute Advantage （绝对优势（绝对优势））Adam Smith

Adam SmithAdam Smith

Scottish Philosopher and Economist Wrote “An Inquiry into the Wealth

of Nations”, better known as “The Wealth of Nations”

Established basic economic principals such as free markets

Absolute AdvantageAbsolute Advantage

Occurs when one country can produce a good or service more cheaply than another country

A country can possibly have an absolute advantage in producing many goods, or an absolute advantage in producing no goods

Countries benefit from exporting what they produce cheaper than anyone else


Absolute advantage: each nation is more efficient in producing one good

Output per labor hour

Nation Wine Cloth

United States 5 bottles 20 yardsUnited Kingdom 15 bottles 10 yards

US should produce….?UK should produce….?


Absolute advantage: one nation is more efficient in producing both goods

Output per labor hour

Nation Cars Wheat

United States 40 cars 20 bushelsUnited Kingdom 25 cars 10 bushels

US should produce….?UK should produce….?


Limitations Countries often want to import goods

and services but cannot guarantee that the country whose product they purchase will want to purchase their own products

Cannot explain, for example, why the US is the United States is both the largest producer and importer of cars in the world

Comparative AdvantageComparative Advantage （相对优势（相对优势））David Ricardo

David RicardoDavid Ricardo

British Economist

Main developer of Classical Economics

Famous for his “Wine and Cheese” explanation of Comparative Advantage

Comparative AdvantageComparative Advantage

Nations can gain from specialization, even if they lack an absolute advantage

Absolute Advantage

(aL = labor/1 unit, no * = USA, * = France)If aLA < aL*A, then USA has an absolute advantage in producing Product A over France


Opportunity Cost （机会成本） To produce one product, a countr

y must use resources that could be used to produce another product

Marginal Rate of Transformation Slope, shows how much of one pr

oduct must be given up to produce another product

L*A

L*B

A

BX

Marginal Rate of Transformation


The USA has a comparative advantage in producing Product A over France if:aLA aL*A aL*B aLB

< < aLB aL*B aL*A aLA

In this case, France would have the comparative advantage in producing Product B


This can also be calculated from production:The US has a comparative advantage in

Product A if:A A* B* B

> >B B* A* A

In this case, France would have the comparative advantage in producing Product B


Cheese Wine Total

USA aLC=1 aLW=2 L=24

France aL*C=6 aL*W=3 L*=24Which country has the absolute advantage in Cheese? Wine?

Cheese – aLC(1) < aL*C(6) = US Wine – aLW(2) < aL*W(3) = US

Which country has the comparative advantage in Cheese? Wine?Cheese – aLC(1) aL*C(6) US requires 0.5 hrs/unit of Cheese

< = aLW(2) aL*W(3) France requires 2 hrs/unit of Cheese

Wine - aL*W(3) aLW(2) France requires 0.5 hrs/unit of Wine < =

aL*C(6) aLC(1) US requires 2 hrs/unit of Wine

US has a comparative advantage in Cheese, France has a comparative advantage in wine

Comparative AdvantageComparative AdvantageW

ine

Cheese

24

12

2

2 12 24

USA

France

The slope (MRT) of the US line is flatter, the opportunity cost for cheese is lower in the US, whereas the opportunity cost for wine is higher

Production Possibilities Line

MRT=0.5

MRT=2.0


Autarky means a countries production and consumption are exactly the same

This is usually the equilibrium of supply and demand


Cheese (units) Wine (units)

US 16 4

France 3 2

World Total 19 6

Win

e

Cheese

24

12

2

2 12 24

USA

France

Autarky Production/Consumption



US 16 4

France 3 2

World Total 19 6



US 24 0

France 0 8

World Total 24 8

Specialized Production


5 2

Net Gains



Consumption

Production

Consumption

Production

US 16+2=18 24 4+1=5 0

France 3+3=6 0 2+1=3 8

World Total 24 24 8 8

Consumption/Production After Trade

US imports 5 units of wine; France imports 6 units of cheese

Terms of Trade = 5 wine/6 cheese or 5/6 wine/cheese

Both countries benefit as a result of specialization and trade


Win

e

Cheese

24

12

2

2 12 24

We can also see graphically the terms of

trade


p. 23 Tractors Wool Total

Country A aLT=1/20 aLW=1/200 L=10

Country B aL*T=1/10 aL*W=1/150 L*=10

Which country has the absolute advantage in Tractors? Wool?

Tractors – aLT(1/20) < aL*T(1/10) = A Wool – aLW(1/200) < aL*W(1/150) = A

Which country has the comparative advantage in Tractors? Wool?Tractors – aLT(1/20) aL*T(1/10) “A” requires 10 resources / Tractor

< = aLW(1/200) aL*W(1/150) “B” requires 15 resources / Tractor

Wool - aL*W(1/150) aLW(1/200) “B” requires 1/15 resources / bale of Wool < =

aL*T(1/10) aLT(1/20) “A” requires 1/10 resources / bale of Wool

“A” has a comparative advantage in Tractors, “B” has a comparative advantage in Wool


The slopes of both countries are flat, but the slope for Country A is slightly more sloped than Country B

Tra

ctor

s

Wool


Tractors Wool

Country A 100 1000

Country B 50 750

World Total 150 1750


Tra

ctor

s

Wool


Tractors Wool

Country A 100 1000

Country B 50 750



Tractors Wool

Country A 200 0

Country B 0 1500



Tractors Wool

50 -250

Net Gains/LossesWe have a gain in Tractors, but

a loss in Wool

Comparative AdvantageComparative Advantage For comparative advantage to be effective, we must

have a gain in both goods

Resources Used Tractors Wool

Country A 10 0 200 0

Country B 0 10 0 1500

World Total 200 (+50) 1500 (-250)



Country A 9 1 180 200

Country B 0 10 0 1500

World Total 180 (+30) 1700 (-50)

Partially Specialized Production


Country A 8 2 160 400

Country B 0 10 0 1500

World Total 160 (+10) 1900 (+150)

Partially Specialized Production


Tractors Wool

Consumption

Production

Consumption Production

Country A 100+5=105

160 1000+75=1075

400

Country B 50+5=55 0 750+75=825 1500

World Total 160 160 1900 1900

Consumption/Production After Trade

“A” imports 675 bales of wool; “B” imports 55 Tractors

Terms of Trade = 675 wool/55 tractors or 135/11 wool/tractors

Both countries benefit as a result of specialization and trade

Comparative AdvantageComparative Advantage Transport and tariffs may modify the gains from

trade by increasing costs Opportunity costs may change as resources are

moved from one industry to another Increasing speculation may yield advantages in

terms of economies of scale If concentrating on a narrow range of products,

a sudden change in demand could cause severe problems

Exchange rates may vary affecting opportunity cost ratios

Imperfect competition could mean that prices do not reflect opportunity cost ratios in some countries

经济学 ii ：世界经济 economics 2: the world economy. for information concerning this course,...

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