Transcript class1

Welcome to
EC 382: International
Economics
By: Dr. Jacqueline Khorassani
Class 1: Week One
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Week One: Day one

Tuesday, September 4
14:00-14:50
AC 202
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What should you do?

Study the Course Contract available on line
at www.marietta.edu/~khorassj
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–
–
–


Click on Fall 2007 Courses
Click on EC 382: International Economics
Click on Course Contract
It is in Microsoft Word format
Make sure you understand the contract
Ask me questions via an email to
[email protected] or
[email protected] .
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Highlights of the Contract
What is this course about?
 Is an international transaction
different from a transaction within a
nation?
 In many ways an international trade
is no different from an exchange
within a nation.
 Yet, international exchange raises
new and different concerns. Why?

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International trade occurs
between independent
nations


The auto shipments from the USA to
Ireland may be disrupted if the
Ireland’s government imposes a new
quota against American cars.
Also, a sharp depreciation in the US
dollar against the euro will suddenly
make American cars cheaper to Irish
consumers. Neither of the above
events can happen within a given
country.
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Means of Communication
1.
2.
Class
 Tuesdays: 14:00-14:50 in AC202
 Wednesdays: 11:00-11:50 in Tyndall Theatre
 Wednesdays: 15:00-15:50 in AC201
 Note: No Class ob Thursday
My website

3.
www.marietta.edu/~khorassj
Email
1.
2.
[email protected]
[email protected]
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Means of Communication
4. Office



310 St. Anthony’s
Phone: 091- 493105 (office)
Hours

Mondays: 14:00-15:00
Tu & Th: 12:00-13:00
Wednesdays: 13:00-14:00
& by appointment.
5. Balckboard (More on this later.)
http://balckboard.nuigalway.ie
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My Teaching Philosophy

I am not a lecturer
– In other words, I am not going to be a
transmitter of knowledge.



I am a designer, a conductor, a
coach
You are not knowledge sponges
You are knowledge constructors
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My tasks
1. Design a map that will lead you toward the
construction of your knowledge.
–
Study guides will be posted on my website in the
beginning of each week.
2. Help you figure out how to ask the right
questions when you feel lost.
3. Ask you questions in an attempt to find out if
you are on the right track.
4. Give clear and meaningful answers to your
questions.
–
PowerPoint slides of the classroom activities will be
posted on my website at the end of each week.
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Your tasks
1.
2.
Study and follow the map
Ask questions when you feel lost
– A dumb question is better than no
question
3.
Respond to my questions
– Be prepared to be wrong
sometimes
– This is not a test.
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Our joint task

is to build a learning environment
in which we feel free and
comfortable to express our
thoughts; to respectfully disagree
with each other at times; and to
learn from each other.
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Texts



International Economics by Sawyer
and Sprinkle, Prentice Hall, 2006
&
Financial Times
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Examinations

2 exams
1. Exam 1: Wednesday, October 10, 15:00
– 16:00 (20% of grade)
2. Exam 2: Will be determined by the
University later (60% of grade)
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Just in time Assignments

20% of course grade
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Study the textbook’s
Preface
 Believe
me it is not a waste
of time to read the Preface
of a book
 Ask me questions via an
email.
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Check out the textbook
resources at
http://www.prenhall.com/sawyer/
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Chapter 1 (If don’t ask
questions, I assume that you
don’t need my help.)

Macro/Microeconomics
– How are they different from each other?
Micro: studies the production and consumption
of various goods and services and how
particular industries and markets work
 Macro: studies the operation of the entire
economy and the factors that determine the
economy’s total output

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Week One: Class 2

Wednesday September 5
– 11:10- 12:00
– Tyndall
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I received questions;
thank you.
1.
About the textbook
 Unavailable for 2 weeks?!!
 Does the library have it?
 If not, I will leave a copy at the Media
Services in this building (Printing
Services) this afternoon.
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I received questions;
thank you.
2.
About the purpose of a study guide
 You don’t need to turn in anything
 You just do what it says
 If you don’t understand something or
have questions, ask me
 Beginning in week 2

If I don’t get any questions on a certain
topic, I may not discuss it in class. But you
are responsible for that topic.
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I received questions;
thank you.
3.
The book’s resources online
 What are they good for?


Sample questions
Study guide
 I will not directly refer you to the book’s
online resources.
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International Economics

What is it all about?
– Explains patterns of international
transactions
Is free trade good or bad?
 Are trade barriers good or bad?
 Is it good to have for the euro to appreciate
or depreciate against dollar?

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Is this Macro or Micro
topic?

The effect of a trade barrier on the
overall unemployment rate in Ireland.
– Macro

The effect of import quotas on the
production of cars in the US
– Micro

International Economics requires both
Micro and Macro economic analysis
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GDP


What does it measure?
– Market value of all final goods and
services produced within a country
in a given period of time
Why do we measure GDP?
– It is a measure of output, income (with
some adjustments) and economic well
being.
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GDP

What are the components of GDP?
– GDP = C + I + G + (X – M)

What is per capita GDP?
– GDP divided by population
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The Output of
the World Economy
Table 1.1: Distribution of World Population and Economic
Output, 2002
GDP
per Capita
Population
(millions)
% of World
Population
Total GDP
(millions of $)
% of World
GDP
Low-Income
Economies
$451
2,494.6
40.2%
$1,123,865
3.5%
Middle-Income
Economies
$1,877
2,737.8
44.2%
$5,139,306
15.9%
High-Income
Economies
$26,964
966.2
15.6%
$26,052,812
80.6%
Source: World Bank, 2004
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What is the relationship
between a nation’s income
and its exports? Imports?

Empirical Evidence: high income
economies import and export more than
middle and low income economies .
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Imports and Exports of Goods in
the World Economy
Table 1.2: Distribution of Imports and Exports of Merchandise in the World Economy
(2002)
Imports
(millions of $)
% of World
Total
Exports
(millions of $)
% of World
Total
Low-Income
Economies
$197,606
3.0%
$211,197
3.3%
Middle-Income
Economies
$1,364,003
20.7%
$1,447,025
22.4%
High-Income
Economies
$5,028,663
76.3%
$4,796,707
74.3%
World Total
$6,590,272
$6,454,929
Source: World Bank, 2004
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What are the multinational
corporations?

Companies that own, control, or
manage production and distribution
facilities in several countries
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What is the difference between
foreign portfolio investment and
foreign direct investment?
1.
portfolio investment
– The purchase of financial assets

2.
For example, stock and bonds, in a foreign
country
direct investment
– A domestic corporation’s purchase of
real assets

For example, plant and equipment, in a
foreign country
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Week One: Class 3

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15:10-16:00
AC 201
I will leave a copy of Chapters 1-3 at
the Media Services in this building
(Printing Services) tomorrow.
No class tomorrow
Don’t miss our class next week

There is going to be an in class assignment.
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What is foreign exchange
market?


The market where currencies are
bought and sold
Exchange Rate
– The price of one currency in terms of
another currency
Today, €1= $1.4
 What if tomorrow €1= $1.8

– Dollar depreciated and euro appreciated
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Chapter 2


What are the similarities and the differences
between international and interregional
trade?
Similarities
– Florida can produce oranges cheaper than Ohio
so it sells oranges to Ohio.

Both states benefit
– Italy can produce wine cheaper than Ireland so it
sells wine to Ireland.

Both countries benefit
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
Differences
– Orange producers in Ohio lose their jobs

No so bad???
– Irish wine producers lose their jobs

Bad???
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Questions (Copy these
questions please.)
1.
2.
3.
4.
Why do the two nations trade?
How does the trade affect the price
in each country?
Is everyone better off?
What is the effect of trade
– Consumers in each nation?
– Producers in each nation?
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Trade in an
Individual Product
Figure 2.1: The Effects of Trade on Production, Consumption,
and the Price of Cloth
Price of Cloth
Price of Cloth
E
PU.S.
i
p*
Imports
c
SINDIA
j
P1
P2
SU.S.
P1
p*
d
n
P2
r
PINDIA
DU.S.
Q1
QU.S.
Q2
U.S. Cloth Market
Quantity of Cloth
g
h
Exports
a
b
k m
F
DINDIA
Q3 QINDIA Q4
Quantity of Cloth
India’s Cloth Market
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Let’s re-visit the
questions
1.
2.
3.
4.
Why do the two nations trade?
How does the trade affect the price
in each country?
Is everyone better off?
What is the effect of trade
– Consumers in each nation?
– Producers in each nation?
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Mercantilism (1700s)



A country should discourage imports
and encourage exports in order to
increase its wealth
Tariffs and quotas were used to restrict
imports to cause a “favorable trade
balance”
Trade is a zero sum activity
– Exporters gain, importers lose
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Adam Smith (1723
(Scotland)-1790)

Trade is not a zero sum game
– Both exporters and importers win
– Nobody forces you to import
– If you import on your free will then you
must gain from it.
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What does absolute
advantage mean?



If India can produce one yard of cloth using
fewer resources than the US, then India has
absolute advantage in production of cloth
Or
If India uses all of its resources it can
produce more cloth than the US, then India
has absolute advantage in production of
cloth
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