2. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 INTERNATIONAL ECONOMICS 2004 / 2005 Southwestern University of Finance & Economics Mr. Stephan Schoop

3. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Welcome !

4. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 What is this course about Why do countries trade? What determines the pattern of production and trade? Why does a country: + Export certain goods? + Import certain goods? + Export and import certain goods? Who trades with whom and why?

5. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 What is this course about? (2) Open / Closed Economy? What are barriers to trade? –Why? –Useful? What are the international financial relations ? How do exchange rates work?

6. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005

7. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005

8. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 China and Selected Countries Export Shares World Trade in Manufactures

9. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Have a look at the worldbank summary CHINA.

10. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 How to be successful in this class Prepare for the class by reading the chapter in ADVANCE Take notes in class (!) Participate in class, BE ACTIVE !` Do your homework and the assignments I will give you Download the power point presentation from the FTP server. No phones, newspapers, talking,etc..

11. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Classroom agreement If you can’t understand me, raise your hand and tell me. If I can’t understand you, I will tell you as well.

12. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 How to reach me Office Hours, Office #130 –Mondays 4 – 6 pm –You may also email me to set up an appointment if these times are not convenient. Email: stephan.schoop@gmail.com

13. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Goal of today’s class Getting familiar with the English Economics Terms Review some basic Economic terms Start with international economics

14. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Organization I will give you various assignments during the semester. Some you have to do individually Others you will do in your “study-team”

15. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 “study-team” A study-team is a group of 6 students who will work together throughout the semester. The goal is to support & motivate each other Form YOUR team until next week

16. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Assessments Attendance 5% Class Activities, i.e. group project and homework 15% Mid Term20% Final Exam60% Total100%

17. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Introduction to Economics The Economic Problem Production Possibility Frontiers Opportunity Cost Supply and Demand

18. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 The Economic Problem What goods and services should an economy produce? Should the emphasis be on agriculture, manufacturing, services, sports, leisure or housing? How should goods and services be produced? Is it labor intensive, land intensive and/or capital intensive? Efficiency? Who should get the goods and services produced? Equal or unequal distribution?

19. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Why do we have to ask these questions at all? What goods and services should an economy produce? Wouldn’t it be easier to just produce all goods we want? Fact is, we can’t. Why? Because we don’t have enough resources to produce whatever we want.

20. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 The world is limited “ There are not enough factories (capital) to produce a car and a plane and motorbike for everyone.” “There is not enough land to build a big house with tennis court, swimming pool, private lake and huge garden,etc..for everyone.” “It’s impossible that everybody has his or her own cook, driver and football team to practice, because there are not enough workers.

21. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 But almost everybody would like to have a car and a private plane and a motorbike... –We see: we want more than we can have. Our wants are unlimited, our resources are limited. This is the economic Problem

22. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Economic Terms Goods that are limited in supply are called scarce goods. The noun is scarcity Therefore we must make sure we make the best use of our scarce resources. –We must use them efficiently. The noun is efficiency.

23. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 ->Implications for INTERNATIONAL TRADE?

24. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 So many decisions to make.. Economics is a lot about making decisions. To help us make these decisions we may use models that help us understand the reality.

25. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 What are the decisions you as a student have to make? What is your scarce resource?..probably time.

26. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 You are an economy.. You have to decide what knowledge you produce. For example: Do you use your homework time to study Marketing or Economics?

27. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Production Possibility Frontiers Marketing Knowledge Economics Knowledge Mo Eo A B M1 E1 Assume you only would have to study two subjects; Marketing and Economics. If you decide to use every minute you have to study Marketing you devote all your time to Marketing (Mmax). If you decide to use every minute you have to study Economics you devote all your time to Economics (Emax). Mmax Emax

28. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Every company has to make a similar decision. What does the company have to decide?

29. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 What goods shall we produce? COMPANY, For Example NOKIA TV’s COMPANY Mobile Phones Or / And:

30. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Production Possibility Frontier company Mobile Phones TV’s Mo To A B M1 T1 Mmax Emax

31. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Production Possibility Frontiers Show the different combinations of goods and services that can be produced with a given amount of resources No ‘ideal’ point on the curve Any point inside the curve – suggests resources are not being utilised efficiently Any point outside the curve – not attainable with the current level of resources Useful to demonstrate economic growth and opportunity cost

32. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 PPF For individual businesses But also for entire national economies

33. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Production Possibility Frontier Economy Guns (thousands) Butter (millions of pounds) 3 A B 4.5 15 5 11 5

34. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Production Possibility Frontiers Capital Goods (e.g.machines) Consumer Goods (e.g.food in tons) 5 5 A.B.B Production inside the PPF – e.g. point B means the country is not using all its resources 3 4

35. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 What does this mean? For your case as a student: –If you have perfect conditions to study (motivation, time, quiet, interest, etc), then you will be on the blue line. –If not you will be inside the blue line. Let’s have a look!

36. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Production Possibility Frontiers Study Marketing (minutes) Study Economics (minutes) Mo Eo A B M1 E1 Mmax Emax

37. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Efficiency If you find yourself on the blue line, If a company produces on the blue line, If a whole economy produces on the blue line,  then this is called efficient use of resources

38. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Efficiency To know whether a process is efficient or not is one of the most important questions in business as well as personally. –Examples: –In a restaurant, is the process of ordering food efficient?

39. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Efficiency In a factory, how should you setup your production for best efficiency? Is it more efficient for you to shower before you get dressed in the morning or the other way around?

40. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 What is the cost of studying Economics? Not studying Marketing Studying one hour of Economics is a benefit for your Economics knowledge, but a cost to your Marketing knowledge. (You could have used this hour to study Marketing). These costs we call OPPORTUNITY COSTS.

41. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Opportunity Cost Definition – the cost expressed in terms of the next best alternative sacrificed. In other words, what you give up to do something else. Helps us view the true cost of decision making Implies the value of different choices

42. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Production Possibility Frontier Economy Guns (thousands) Butter (millions of pounds) 3 A B 4.5 15 5 11 5 Opp.costs A-B?

43. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Have a look at this PPF of NOKIA Mobile Phones TV’s Emax What happened? For Example: Invention of a new technology to produce micro chips. = increase in productivity Or: The discovery of more silicon. = increased access to.. resources A B 75 100 75

44. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 u Buyers determine demand. u Sellers determine supply. Markets N-mart

45. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Demand Quantity demanded = the amount of a good that buyers are willing and able to purchase.

46. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Demand Schedule The demand schedule = a table that shows the relationship between the price of the good and the quantity demanded.

47. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Demand Schedule

48. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Determinants of Demand u Market price u Consumer income u Prices of related goods u Tastes u Expectations

49. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Demand Curve The demand curve is the downward- sloping line relating price to quantity demanded.

50. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Demand Curve $3.00 2.50 2.00 1.50 1.00 0.50 213456789101211 Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone

51. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Determinants of Demand u Market price u Consumer income u Prices of related goods u Tastes u Expectations Skip the demand side

52. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Change in Quantity Demanded versus Change in Demand Change in Quantity Demanded u Movement along the demand curve. u Caused by a change in the price of the product.

53. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Determinants of Demand u Market price u Consumer income u Prices of related goods u Tastes u Expectations Change in Quantity demanded

54. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Changes in Quantity Demanded 0 D1D1 Price of Cigarettes per Pack Number of Cigarettes Smoked per Day A tax that raises the price of cigarettes results in a movement along the demand curve. A C 20 2.00 $4.00 12

55. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Change in Quantity Demanded versus Change in Demand Change in Demand u A shift in the demand curve, either to the left or right. u Caused by a change in a determinant other than the price.

56. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Determinants of Demand u Market price u Consumer income u Prices of related goods u Tastes u Expectations Change in Demand

57. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 0 D1D1 Price of Ice-Cream Cone Quantity of Ice-Cream Cones D3D3 D2D2 Increase in demand Decrease in demand

58. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Consumer Income u As income increases the demand for a normal good will increase. u As income increases the demand for an inferior good will decrease. u Inferior means goods that we think are lower in quality or value? E.g. Bus Travel

59. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Consumer Income Normal Good $3.00 2.50 2.00 1.50 1.00 0.50 213456789101211 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in demand An increase in income... D1D1 D2D2

60. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Consumer Income Inferior Good $3.00 2.50 2.00 1.50 1.00 0.50 213456789101211 Price of potatoes Quantity of potatoes 0 Decrease in demand An increase in income... D1D1 D2D2

61. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Supply Quantity supplied is the amount of a good that sellers are willing and able to sell.

62. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Supply Quantity supplied is the amount of a good that sellers are willing and able to sell.

63. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Law of Supply The law of supply states that there is a direct (positive) relationship between price and quantity supplied.

64. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Determinants of Supply u Market price u Input prices u Technology u Expectations u Number of producers

65. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Supply Schedule The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.

66. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Supply Schedule

67. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Supply Curve The supply curve is the upward- sloping line relating price to quantity supplied.

68. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Supply Curve $3.00 2.50 2.00 1.50 1.00 0.50 213456789101211 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0

69. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Market Supply u Market supply refers to the sum of all individual supplies for all sellers of a particular good or service. u Graphically, individual supply curves are summed horizontally to obtain the market supply curve.

70. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Determinants of Supply u Market price u Input prices u Technology u Expectations u Number of producers skip the supply side details

71. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Change in Quantity Supplied versus Change in Supply Change in Quantity Supplied u Movement along the supply curve. u Caused by a change in the market price of the product.

72. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Determinants of Supply u Market price u Input prices u Technology u Expectations u Number of producers Change in Quantity demanded

73. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Change in Quantity Supplied 1 5 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 S 1.00 A C $3.00 A rise in the price of ice cream cones results in a movement along the supply curve.

74. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Change in Quantity Supplied versus Change in Supply Change in Supply u A shift in the supply curve, either to the left or right. u Caused by a change in a determinant other than price.

75. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Determinants of Supply u Market price u Input prices u Technology u Expectations u Number of producers Change in Supply

76. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Change in Supply Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 S1S1 S2S2 S3S3 Increase in Supply Decrease in Supply

77. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Change in Quantity Supplied versus Change in Supply

78. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 What we know now We know the demand schedule of the ice cream or the snickers. And we know the ice cream supply. Now we need to bring the demand and the supply together and find the price that satisfies the customer and the supplier.

79. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Equilibrium Price u The price that balances supply and demand. On a graph, it is the price at which the supply and demand curves intersect. Equilibrium Quantity u The quantity that balances supply and demand. On a graph it is the quantity at which the supply and demand curves intersect.

80. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Demand Schedule Supply Schedule At $2.00, the quantity demanded is equal to the quantity supplied!

81. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Quantity of Ice-Cream Cones Supply Demand Price of Ice- Cream Cone Equilibrium of Supply and Demand 2134567891010 12121 0 $3.0 0 2.5 0 2.0 0 1.5 0 1.0 0 0.5 0 Equilibrium

82. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Price of Ice- Cream Cone Quantity of Ice- Cream Cones 2134567891010 12121 0 $3.0 0 2.5 0 2.0 0 1.5 0 1.0 0 0.5 0 Supply Demand Surplus Excess Supply

83. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Supply and Demand Surplus When the price is above the equilibrium price, the quantity supplied exceeds the quantity demanded. There is excess supply or a surplus. Suppliers will lower the price to increase sales, thereby moving toward equilibrium.

84. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Excess Demand Quantity of Ice-Cream Cones Price of Ice-Cream Cone $2.00 0123 4 5678910111213 Supply Demand $1.50 Shortage

85. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 u Products are the same u Numerous buyers and sellers so that each has no influence over price u Buyers and Sellers are price takers Perfect Competition

86. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 Shortage When the price is below the equilibrium price, the quantity demanded exceeds the quantity supplied. There is excess demand or a shortage. Suppliers will raise the price due to too many buyers chasing too few goods, thereby moving toward equilibrium.

87. http://www.bized.ac.uk E-Commerce School Southwestern University of Finance & Economics INTERNATIONAL ECONOMICS 2005 HOMEWORK FOR NEXT WEEK READ CHAPTER 1 OF THE BOOK.