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International Economics Revision Sheet

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7 views2 pages

International Economics Revision Sheet

Uploaded by

aya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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International Economics - Even if a country has no absolute

advantages, trade can still be mutually


Revision Sheet bene cial

Key Concepts 3. Heckscher-Ohlin Model


- Countries export goods that intensively use
1. International trade their abundant factors of production
2. International production - Explains trade based on di erences in factor
3. International nance endowments

International Trade Key Graphs

- Exchange of goods and services between 1. Supply and Demand in International Trade
countries [Graph showing supply and demand curves
- Goods: tangible and storable with world price]
- Services: intangible and non-storable
- Services account for 1/5 of global trade 2. Production Possibilities Frontier (PPF)
[Graph showing PPF curve and trade
Reasons for expansion of international trade: possibilities]
- Transportation improvements (e.g. container
shipping) 3. O er Curves
- Information and communication technology [Graph showing o er curves for two countries]
advances
- Tari reductions and trade liberalisation 4. Exchange Rate Determination
- Entry of China into global markets [Graph showing supply and demand for
currency]
International Production
Calculations
- Production across multiple countries
- Methods: 1. Opportunity Cost
- Non-equity contracting (outsourcing, Opportunity Cost = Production of Good A /
licensing, franchising) Production of Good B
- Foreign Direct Investment (FDI) by
multinational enterprises (MNEs) 2. Terms of Trade
- MNEs account for 1/4 of world GDP and 3/4 Terms of Trade = Price of Exports / Price of
of world trade Imports
- Global Value Chains (GVCs) link production
across countries 3. Exchange Rate
Exchange Rate = Domestic Currency / Foreign
International Finance Currency

- Exchange of assets between countries Detailed Theory Explanations


- Includes currencies, equities, bonds, real
estate Absolute Advantage
- Foreign exchange transactions exceed trade - Concept introduced by Adam Smith
transactions in volume - A country has an absolute advantage if it
- Can lead to capital ight and nancial crises can produce a good using fewer resources
than another country
Key Theories - Example: Vietnam vs Japan in rice
production
1. Absolute Advantage (Adam Smith) - Leads to specialisation and trade based on
- A country has an absolute advantage if it e ciency
can produce a good using fewer resources
than another country Comparative Advantage
- Introduced by David Ricardo (1817)
2. Comparative Advantage (David Ricardo) - A country has a comparative advantage if it
- A country has a comparative advantage if it can produce a good at a lower opportunity
can produce a good at a lower opportunity cost than another country
cost than another country - Even if one country has absolute advantage
in all goods, trade can still be bene cial
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- Based on opportunity cost, not monetary or
resource cost

Heckscher-Ohlin Model
- Developed by Swedish economists in the
1920s
- Expands on Ricardian model by introducing
a second factor of production (capital)
- Explains trade based on di erences in factor
endowments
- Key results:
1. H-O theorem: Capital abundant countries
export capital-intensive goods
2. Stolper-Samuelson theorem: Increase in
price of a good increases the price of the
factor used intensively in its production
3. Factor price equalisation theorem
4. Rybczynski theorem

Additional Resources

For a more in-depth understanding of these


concepts, you can watch the video lecture
series at the following link:

[International Economics Lecture Series Video


Link]

Good luck with your studies!

Sources
[1] International-Economics-Lectures.pdf
https://ppl-ai- le-upload.s3.amazonaws.com/
web/direct- les/40282840/
a609a188-7829-4017-be38-5aa5e92d3b86/
International-Economics-Lectures.pdf
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