International economics pdf free

Arguments for and against protection -- Ch. Pushing exports -- Ch. Trade blocs and trade blocks -- Ch. Trade and the environment -- Ch. Trade policies for developing and transition countries -- Ch. Multinationals and migration : international factor movements -- pt. Understanding foreign exchange -- Ch. Payments among nations -- Ch. The foreign exchange market -- Ch. Forword exchange and international financial investment -- Ch. What determines exchange rates?

Government policies toward the foreign exchange market -- Ch. International lending and financial crises -- pt. Macro policies for open economies -- Ch. How does the open macroeconomy work?

Internal and external balance with fixed exchange rates -- Ch. Floating exchange rates and internal balance -- Ch. National and global choices : floating rates and the alternatives -- App. The web and the library : international numbers and other information -- App. I believe that theory is done primarily to guide policy. We do positive economics to help answer the normative questions; for example, what should a country do about its trade policy or its exchange rate policy?

The results from models give us insights that help us answer these questions. Thus this text strives to explain why each model is interesting by connecting its results to some aspect of a current policy issue. A prime example is found in Chapter 11 "Evaluating the Controversy between Free Trade and Protectionism" of this book, which addresses the age-old question of whether countries should choose free trade or some type of selected protection.

The chapter demonstrates how the results of the various models presented throughout the text contribute to our understanding of this long-standing debate. C, program. He has also spoken to business, government, and academic audiences in Japan, Malaysia, the Philippines, China, and Mongolia as part of the U. His research focuses on two areas: international trade policy and behavioral economics.

With respect to behavior, he examines why people choose to do things that many observers view as irrational. Examples include addiction to cigarettes, cyclical dieting, and anorexia.

His research shows that dangerous behaviors can be explained as the outcome of a reasoned and rational optimization exercise. With respect to trade policy, his research seeks to reveal the strengths and weaknesses of arguments supporting various policy options.

The goal is to answer the question, what trade policies should a country implement? More generally, he applies the economic analytical method to identify the policies that can attract the most widespread support.

His research focuses on international trade policy, market ethics, behavioral economics and more recently, climate change policy. If a nation has an absolute disadvantage in both good its comparative advantage exists where its absolute disadvantage is relatively smaller. In Table 2. Nation 2 has an absolute disadvantage in both goods, but its disadvantage is relatively less in Commodity Y, so Nation 2 has a comparative advantage in Commodity Y. Based on comparative advantage, Nation 1 should specialize in Commodity X and export it to Nation 2 in exchange for Commodity Y.

To show this, assume a reallocation of labor in each nation. Let Nation 1 reallocate 1 laborer towards Commodity X, the good in which Nation 1 has a comparative advantage. Let Nation 2 reallocate 7 laborers towards Commodity Y, the good in which Nation 2 has a comparative advantage.

As shown in Table 2. Specialization according to comparative advantage can increase world production. Exchange, however, can now increase the amounts of both commodities available in both nations. Assume that 8 units of X exchange for 6 units of Y. If Nation 1 exports 8 units of X in return for 6 units of Y, then Nation 1 will have more of both goods.

This rate of exchange will mean Nation 2 imports 8 units of X and exports 6 units of Y. The goods available to each nation as a result of the exchange are shown in Table 2. Exchanging at the rate of 8 units of X for 6 units of Y is one way to increase the quantity of both goods in both nations. The conclusion is worth summarizing and emphasizing: Even if a nation has an absolute advantage in the production of both goods, two nations can engage in mutually beneficial trade if each nation specializes in and exports the good in which it has the comparative advantage.

The point of comparative advantage can also be understood in the activities of individuals. If individuals do not specialize and exchange, then each individual must produce all of the goods that each individual consumes. Consider your own consumption if you had to produce all of the goods that you consume, e. Without the ability to exchange goods and services, we would be unable to trade the surplus of goods in which we specialize for the surplus of goods in which others specialize.

Although self-sufficiency may be appealing, the cost of self-sufficiency is a significantly lower standard of living. The above description of trade was described in terms of bartering some number of units of Commodity X for some number of units of Commodity Y.

If instead, monetary exchange is introduced, whereby money is exchanged for X and Y, then the outcomes are identical to the barter analysis. Mexicans will compare that 40 peso price for good X produced in the US with the price of good X produced in Mexico. The price of a good, in turn, depends upon the cost of producing it which is dependent on the wage rate of labor and the productivity of labor. Suppose that at some wage rates in US and Mexico and some exchange rate between the peso and the US dollar that the US has cheaper prices for all goods.

Although this situation is possible, it is a disequilibrium situation that cannot be maintained. There will be demand, from both nations, for the products of the US but no demand for the products of Mexico. The demand for the products produced by the laborers of US will cause the wage rate in the US to increase relative to the wage rate in Mexico, and the cost of a dollar on the foreign exchange market to increase.

The increase in US wages and the cost of the dollar on the foreign exchange market will cause the price of products produced in the US to increase. The lack of demand for products produced by the laborers of Mexico will cause the wage rate in Mexico to decrease, and the cost of peso on the foreign exchange market to fall, both of which will lower the price of Mexican products.

This will continue until there is some demand for Mexican products. There will also have to be demand for US products or the reverse would occur. The product in which Mexico will eventually compete will be the product in which it has the smaller absolute disadvantage because prices will not have to fall as much for this product in order to make Mexico competitive. An example of comparative advantage in a monetary economy and possible equilibrium wages and exchange rates is provided in Question 4 of Section III below.

It is not wages alone or productivity alone that determines competitiveness, but wages relative to productivity. If one nation has lower prices for all goods due to low wages, then it is a disequilibrium situation. Similarly, high productivity nations will not continually out-compete low productivity nations. Comparative advantage was identified above as greater relative absolute advantage or smaller relative absolute disadvantage. A more appealing and equivalent explanation of comparative advantage is in terms of opportunity cost.

The opportunity cost of one unit of a good is defined as the number of units of one good foregone in order to produce one unit of another good. This says the amount of Y that must be given up in Nation 1 to produce a unit of X is less than that of Nation 2. In producing Commodity X it is better for it to be produced in Nation 1 because fewer units of Commodity Y will be given up to produce Commodity X.

Because the opportunity cost of X is lower in Nation 1, Nation 1 has a comparative advantage in the production of good X. Return to Table 2. Expressing cost in terms of opportunity cost makes it apparent that if one nation has a comparative advantage in the production of one good, then the other nation must have a comparative advantage in the other good.

If Nation 1 has a lower opportunity cost for X, then Nation 2 must have a lower opportunity cost for Y. Thus, it is impossible for one nation to have a comparative advantage in the production of both goods. Questions 1. The outputs per laborer per day in the production of computers and autos in Nation 1 and in Nation 2 are given in the table below.

The outputs per laborer per day for Tanzania and Zaire for fish and lumber are given in the table below. Assuming the numbers in the above table are constant at all levels of production, draw the production possibility frontier for Tanzania and for Zaire in Fig.

Figure 2. Refer to the table and the production possibility frontiers produced in Question 2. The outputs per laborer per day for wine and cheese for France and the U.