Transcript Why study global economic issues and policies?

Global Economic Issues
and Policies
First edition
On the Front side
1. Your Name (First and Last); Include your ID #
2. List of Economics course you have taken so far
3. Briefly describe how you want the lectures/
discussions/tests on this course to be
organized
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On the back side
• What is the most Important GLOBAL
ISSUE today? Why?
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Global Economic Issues
and Policies
First edition
Chapter 1
Understanding the
Global Economy
1. Why study global economic issues and policies?
2. How important is the global market for goods and
services?
3. How important are the international monetary and
financial markets?
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4. What are market supply and demand?
5. What are consumer surplus and producer
surplus?
6. How are market prices determined?
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Global Economic Policy and Issues
• Globalization
 The increasing interconnectedness of peoples and
societies and the interdependence of economies,
governments, and environments.
• Economic Integration
 The extent and strength of REAL-SECTOR and
FINANCIAL-SECTOR linkages among national
economies.
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The Global Market for Goods and Services
• Real Sector
 A designation for the portion of the economy
engaged in the production and sale of goods and
services.
• Financial Sector
 A designation for the portion of the economy in
which people trade financial assets.
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Global Economic Policy and Issues
• Economic Integration
 The extent and strength of REAL-SECTOR and
FINANCIAL-SECTOR linkages among national
economies.
 Depends on…
 The
volume of international trade in the real sector
 The global market for goods and services
 The volume of trade in the international monetary, and
financial markets
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Table 1-1
The Top Twenty Globalized Nations
Source: Foreign Policy http://www.foreignpolicy.com.
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Figure 1-1
Growth of Global Trade in Goods and Services:
Source: International Monetary Fund, World Economic Outlook, various issues.
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Figure 1-2
Selected Individual Nations’ Trade in Goods and
Services
Source: International Monetary Fund, International Financial Statistics, various issues.
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The International Monetary and Financial
Markets
• Foreign Exchange Market
 A Market (involving private banks, foreign
exchange brokers, and central banks) through
which households, firms, and governments buy and
sell national currencies.
• Foreign Direct Investment
 The acquisition of assets that involves a long-term
relationship and controlling interest of 10 percent or
greater in an enterprise located in another economy.
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Table 1-2
Annual Turnover (Value) in Foreign Exchange
Markets
Source: Held, David, Anthony McGrew, David Goldblatt, and Jonathan Perraton, Global Transformations, p. 209; Bank for International Settlements,
Central Bank Survey of Foreign Exchange and Derivatives Market Activity, 1998, International Monetary Fund, World Economic Outlook, 1998, 2001.
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Table 1-3
Global Foreign Direct Investment Flows
Source: UNCTAD, Handbook of Statistics, various issues and author’s estimates.
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Figure 1-3
Private Capital Flows to Emerging Economies
Source: International Monetary Fund, Annual Report, and International Capital Markets, various issues.
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Understanding Global Markets:
Some Basic Economic Concepts
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Some Basic Economic Concepts
• Demand
 The relationship between the prices that
consumers are willing and able to pay for various
quantities of a good or service for a given time
period, all other things constant.
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Table 1-4
An individual Consumer’s
Demand Schedule
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Some Basic Economic Concepts
• Law of Demand
 An economic law that states that there is an inverse,
or negative, relationship between the price that
consumers are willing and able to pay and the
quantities that they desire to purchase, Ceteris
paribus.
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Some Basic Economic Concepts
• Supply
 The relationship between the prices of a good or
service and the quantities supplied to the market
by producers within a given time period, all other
things constant.
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Some Basic Economic Concepts
Table 1-5
An individual Firm’s
Supply Schedule
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Some Basic Economic Concepts
• Law of Supply
 An economic law that states that there is a positive
or direct relationship between the prices producers
receive and the quantities that they are willing to
supply to the market.
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Some Basic Economic Concepts
• Presenting Demand and Supply
 Various forms:
 Table:
 Graph:
 Mathematical
Equation:
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Schedule
Curve
Function
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Some Basic Economic Concepts
• The Demand
Schedule
Table 1-4
An individual Consumer’s
Demand Schedule
 tabulates the price the
consumer is willing
and able to pay for
various quantities of a
good or service during
a specified time
period, all other things
held constant.
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Some Basic Economic Concepts
• The Supply Schedule
Table 1-5
An individual Firm’s
Supply Schedule
 tabulates the
minimum price a
supplier is willing to
accept for various
quantities supplied of
a good or service.
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Figure 1-4
The Demand for and Supply of Gasoline
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Some Basic Economic Concepts
• Determinants of demand and supply
 What factors influence demand and/or supply?
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Factors Influencing Demand and Supply
• Demand Factors
 Changes in consumer preferences
 Changes in income
 Changes in the prices of related goods
 Changes in the number of consumers
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Factors Influencing Demand and Supply
• Supply Factors
 Changes in the cost and availability of inputs
 Advances in technology
 Changes in the prices of related goods of
services
 Taxes and producer subsidies
 Change in the number of producers
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Table 1-6
Factors Influencing Demand
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Table 1-7
Factors Influencing Supply
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Market Demand And Supply
• Market Demand
 A curve that illustrates
the prices that
consumers are willing
and able to pay for
various quantities of a
good or service for a
given time period, all
other things constant.
 Always downward
slopping
Price
Demand
Curve
Quantity
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Market Demand And Supply (cont’d)
• Market Supply
 A curve that
illustrates the
prices that
producers are
willing to accept for
various quantities
of a good or service
they supply to the
market for a given
time period, all
other things
constant.
 Always upward
slopping
Price
Supply
Curve
Quantity
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Market Price
Price
Supply
P0
Demand
0
Qd
=
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Qs
Quantity
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Copyright©2003 Southwestern/Thomson Learning
Some Basic Economic Concepts
• Why do consumers and producers participate
in the market?
 Consumer and producer surplus
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Consumer and Producer Surplus
• Consumer Surplus
 The benefit that consumers receive from the
existence of a market price.
 The
difference between what consumers are willing
and able to pay for a good or service and the market
price
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Consumer and Producer Surplus
• Producer Surplus
 The benefit that producers receive from the
existence of a market price.
 The
difference between the price that producers are
willing to accept to supply a particular quantity and the
market price.
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Figure 1-5
Consumer and Producer Surplus
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Some Basic Economic Concepts
• How Market Prices Are Determined
 Market prices have the tendency to move to the
equilibrium (center)
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Surplus( Excess Quantity Supplied)
Price
Supply
Surplus
P1
P0
Demand
0
Qd
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Qs
Quantity
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Copyright©2003 Southwestern/Thomson Learning
Shortage (Excess Quantity Demanded)
Price
Supply
P0
P1
Shortage
Demand
Quantity
0
Quantity
supplied
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Quantity
demanded
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How Market Prices Are Determined
• Market Clearing or Equilibrium Price
 The price at which quantity supplied equals quantity
demanded because neither an excess quantity
demanded nor an excess quantity supplied exists at
this price.
 Prices have a tendency to move to the center
(Excess demand keeps upward pressure on prices,
and excess supply keeps a downward pressure on
supply)
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The Global Market
• The Global Market Place
 Global prices are determined based the interaction
between the supply (export) and demand (import) of
quantities in excess of domestic demand or supply
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EXPORT
Price
Supply
Excess domestic supply
P1
P0
Demand
0
Qd
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Qs
Quantity
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Copyright©2003 Southwestern/Thomson Learning
IMPORT
Price
Supply
P0
P1
Excess Domestic Demand
Demand
Quantity
0
Quantity
supplied
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Quantity
demanded
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Copyright©2003 Southwestern/Thomson Learning
How Market Prices Are Determined (cont’d)
• Global Markets:
 Exchange of goods and services beyond national
borders
• For Nations Engaged in International Trade
 The global equilibrium market price arises when
excess quantities demanded, or imports, equal
excess quantities supplied, or exports.
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Figure 1-7
The Global Coffee Market
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