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Gippsland, Berwick, DE, Singapore

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Title: Gippsland, Berwick, DE, Singapore


1
ECW3121 Economics of International Trade and
Finance
  • Gippsland, Berwick, DE, Singapore

2
Subject Adviser
Dr Gennadi KAZAKEVITCH Berwick
- Room 129 Consultation time
Thursday 2-4 PM
Phone 03 9904 7135 E-mail
Gennadi.Kazakevitch_at_buseco.monash.edu.au Interne
t http//www-personal.buseco.monash.edu.au/genn
adik/gkazwww.htm
3
Tutor
Ms Azra Bajric-Kolar Berwick -
Room 123 Tutorials Tuesday 9, 10 and 11
AM Start next week Consultation time
Tuesday 12-1 PM Start in 3 weeks
Phone 03 9904
7232 E-mail Azra.Bajric-Kolar_at_BusEco.monash.edu
.au
4
Objectives
  • To understand the reasons for international
    trade
  • To be able to critically evaluate policy debates
  • To be able to predict the impact of global
    economic development upon Australia or other
    small open economies (such as international
    students home countries)
  • To understand welfare effects of international
    trade.

5
AimsOn the completion of the subject you will
have
  • Introduction to the discipline of International
    economics
  • awareness of the Australian economy as a small
    open economy and open economies role in a world
    of increasing international integration
  • understanding of the exchange rates determination
    and the operation of foreign exchange markets
  • the ability to critically evaluate contemporary
    policy debates in the area of international trade
    and finance.

6
Text Book
Salvatore, Dominick International Economics 8th
Ed John Wiley 2003 Unit book The Reader
7
Assessment
  • Assignment
  • Due 5 PM 22 September 2004 30
  • Examination
  • 3 Hours 70

8
Tutorials
  • Give same priority as lectures
  • Material covered will be for the assignment or
    exam
  • Will assume that work has been done
  • YOUR time to ask questions and help each other

9
Bring to All Lectures and Tutorials
  • Ruler
  • Pencils (coloured)
  • Graph Paper
  • Text Book

10
Approach to Study
  • Follow the Subject Book
  • Work towards the assignments
  • Struggle with the theory
  • Tackle the original articles in the Reader
  • Use your micro and macro skills
  • Read the newspaper for relevant articles

11
Semester Research Topic
  • Australias recent free trade agreements
  • Section of the exam paper
  • Start collecting information now
  • Plenty of information on Internet
  • Link current affairs with the theory

12
Taking Notes
  • Very little writing
  • Print out lecture notes before the lecture
  • Fit your comments/notes around PPT slides.
  • LISTEN before you look
  • LOOK before you write
  • NO, you cannot have a hard copy of my slides .

13
Revise the following concepts and methods in
Microeconomics (ECW1101 and ECW2120)
  • Demand and supply curves
  • Isoquants
  • Edgewoth box
  • Pareto optimum
  • Production frontiers
  • Indifference curves
  • Marginal product of labour and capital
  • Consumer and producer surplus.

14
Revise the following concepts and methods in
Macroeconomics (ECW1102 and ECW2120)
  • Money demand and supply
  • IS, LM, BP curves
  • Balance of payments
  • Expenditure switching and changing
  • Velocity of money
  • Money multiplier.

15
WWW
  • Two options
  • http//www-personal.buseco.monash.edu.au/gennadik
    /ecw3121/ecw3121.htm
  • Or
  • WebCT
  • On-line subject materials.
  • Lecture notes will be normally available on-line
    not later than durirng the weekend prior to the
    lecture
  • Tutorial questions for the next week will be
    available not later than on Wednesday of the
    current week

16
Subject Outline
Trade Theory Study Guide 1 Weeks 1-5
International Trade and Finance
Finance Study Guide 3 Weeks 9-12
Trade Policy Study Guide 2 Weeks 6-8
17
Heckscher-Ohlin
Stolper-Samuelson
Factor Price Equalisation
Comparative Advantage
Trade Theory Study Guide 1 Weeks 1-5
Trade Theory Study Guide 1
Rybzcynski
Absolute Advantage
Immiserising Growth
Mercantilism
18
Trade Theory
  • Theory used to explain and predict.
  • What is International Trade?
  • Why do nations trade?
  • What are the gains from trade?
  • Who gains from trade?

19
Other Trade Policies
Regional Trade Agreements
Trade Policy Study Guide 2 Weeks 6-8
Tariffs
International Resource Movements
Tools of the Trade Policy Analysis
20
Exchange Rates
Current Account Deficit
Finance Study Guide 3 Weeks 9-12
Exchange rate theorems
Interest Arbitrage
21
Heckscher-Ohlin
Stolper-Samuelson
Factor Price Equalisation
Comparative Advantage
Trade Theory Study Guide 1
Rybzcynski
Absolute Advantage
Immiserising Growth
Mercantilism
International Trade and Finance
Balance Of Payments
Foreign Exchange Markets
Non Tariff Barriers
Interest Arbitrage
TradeBlocs
Tariffs
Finance Study Guide 3
Trade Policy Study Guide 2
International Resource Movements
Tools of the Trade Policy Analysis
Exchange rate theorems
22
Heckscher-Ohlin
Stolper-Samuelson
Factor Price Equalisation
Comparative Advantage
Trade Theory Study Guide 1 Weeks 1-5
Trade Theory Study Guide 1
Rybzcynski
Absolute Advantage
Week 1
Immiserising Growth
Mercantilism
23
Trade Theory
Why do Nations Trade?
  • Mercantilism - zero sum game - one nation gains
    at the expense of the other.
  • Adam Smith - both nations can gain from trade.
  • Absolute Advantage - each nation should
    specialise in production of the good which it is
    most efficient at producing.

24
Assumptions
Trade Theory
Why do Nations Trade?
  • Perfect Competition in Product and Factor Markets
    (PMC)
  • Each Country has a fixed endowment of resources
    that are fully used and are homogeneous
  • Technology is Unchanging
  • No Transportation Costs or barriers to trade
  • Factors of Production are perfectly mobile
    between industries but are immobile between
    countries
  • 2x2x1

25
Trade Theory
Why do Nations Trade?
Mercantilism
Thomas Munn (1571-1641)
The way for a nation to become rich and powerful
is to export more than to import
26
Trade Theory
Why do Nations Trade?
Mercantilism
ENGLAND
FRANCE
Imports
Imports
Exports
Exports
27
Trade Theory
Why do Nations Trade?
Absolute Advantage
  • Adam Smith.
  • Trade is necessary for most efficient use of
    world resources.
  • Each nation should specialise in production of
    the good in which it enjoys an absolute
    advantage.
  • Each nations self interest would allow free
    trade to maximise world welfare.
  • Free trade is mutually beneficial for
    participating nations.

28
Trade Theory
Why do Nations Trade?
Revision constant cost production possibility
frontier (PPF)
Product A
4
Represents different combinations pf products A
and B that can be produced at a fixed
endowment of resources. Moving along PPF
represents giving up the production of one of
the products for producing more of the other
one.
3
2
1
0
Product B
1
2
3
4
5
29
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
4
3
2
1
0
Cars 100000s per year
1
2
3
4
5
30
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
4
3
2
1
Cars 100000s per year
0
1
2
3
4
5
31
Why do Nations Trade?
Absolute Advantage
32
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
4
Australia
3
2
1
Japan
0
Cars 100000s per year
1
2
3
4
5
33
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
Production Points in Autarky (closed not
trading economy)
4
Australia
3
(2 sugar, 1 car)
2
1
Japan
0
Cars 100000s per year
1
2
3
4
5
34
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
Production Points in Autarky
4
Australia
3
(2 sugar, 1 car)
2
1
(0.6 Sugar, 2 Cars)
Japan
0
Cars 100000s per year
1
2
3
4
5
35
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
Diagrammatic determination of the world output
4
Australia
3
(2 sugar, 1 car)
2
1
(0.6 Sugar, 2 Cars)
Japan
0
Cars 100000s per year
1
2
3
4
5
36
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
Diagrammatic determination of the world output
4
Australia
3
(2 sugar, 1 car)
2
1
(0.6 Sugar, 2 Cars)
Japan
0
Cars 100000s per year
1
2
3
4
5
37
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
Diagrammatic determination of the world output
4
Australia
3
(2 sugar, 1 car)
2
1
(0.6 Sugar, 2 Cars)
Japan
0
Cars 100000s per year
1
2
3
4
5
38
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
Diagrammatic determination of the world output
4
Australia
3
(2 sugar, 1 car)
2
1
(0.6 Sugar, 2 Cars)
Japan
0
Cars 100000s per year
1
2
3
4
5
39
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
Diagrammatic determination of the world output
4
Australia
3
(2 sugar, 1 car)
2
1
(0.6 Sugar, 2 Cars)
Japan
0
Cars 100000s per year
1
2
3
4
5
40
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
Diagrammatic determination of the world output
4
Australia
3
(2 sugar, 1 car)
2
1
(0.6 Sugar, 2 Cars)
Japan
0
Cars 100000s per year
1
2
3
4
5
41
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
Diagrammatic determination of the world output
4
Australia
3
(2.6 Sugar, 3 Cars)
2
1
Japan
0
Cars 100000s per year
1
2
3
4
5
42
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
World Output Autarky
4
Australia
3
(2.6 Sugar, 3 Cars)
2
1
Japan
0
Cars 100000s per year
1
2
3
4
5
43
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
4
Australia
Output with specialisation in production
(3 sugar, 0.5 Cars)
3
2
1
(0.4 Sugar, 3 Cars)
Japan
0
Cars 100000s per year
1
2
3
4
5
44
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
4
Australia
Output with specialisation in production
(3 sugar, 0.5 Cars)
3
2
1
(0.4 Sugar, 3 Cars)
Japan
0
Cars 100000s per year
1
2
3
4
5
45
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
4
Australia
(3.4 Sugar, 3.5 Cars)
(3 sugar, 0.5 Cars)
3
World Output with specialisation in production
2
1
(0.4 Sugar, 3 Cars)
Japan
0
Cars 100000s per year
1
2
3
4
5
46
Trade Theory
Why do Nations Trade?
Absolute Advantage
Sugar 000000s tonnes per year
4
Australia
(3.4 Sugar, 3.5 Cars)
3
(2.6 Sugar, 3 Cars)
World Output with specialisation in production
2
1
Japan
0
Cars 100000s per year
1
2
3
4
5
47
DONT FORGET
  • Reading Salvatore Chapters 1,2,3 before next
    lecture.
  • Tutorial task

48
Tutorial task
  • Revision of Microeconomics
  • The model of absolute advantage
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