1. First edition Global Economic Issues and Policies

2. University of Minnesota-Duluth, Department of Economics, Summer 20051–2 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 On the Front side

3. University of Minnesota-Duluth, Department of Economics, Summer 20051–3 What is the most Important GLOBAL ISSUE today? Why? On the back side

4. First edition Global Economic Issues and Policies Chapter 1 Understanding the Global Economy

5. University of Minnesota-Duluth, Department of Economics, Summer 20051–5 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?

6. University of Minnesota-Duluth, Department of Economics, Summer 20051–6 4.What are market supply and demand? 5.What are consumer surplus and producer surplus? 6.How are market prices determined?

7. University of Minnesota-Duluth, Department of Economics, Summer 20051–7 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.

8. University of Minnesota-Duluth, Department of Economics, Summer 20051–8 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.

9. University of Minnesota-Duluth, Department of Economics, Summer 20051–9 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

10. University of Minnesota-Duluth, Department of Economics, Summer 20051–10 Table 1-1 The Top Twenty Globalized Nations Source: Foreign Policy http://www.foreignpolicy.com.

11. University of Minnesota-Duluth, Department of Economics, Summer 20051–11 Figure 1-1 Growth of Global Trade in Goods and Services: Source: International Monetary Fund, World Economic Outlook, various issues.

12. University of Minnesota-Duluth, Department of Economics, Summer 20051–12 Figure 1-2 Selected Individual Nations’ Trade in Goods and Services Source: International Monetary Fund, International Financial Statistics, various issues.

13. University of Minnesota-Duluth, Department of Economics, Summer 20051–13 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.

14. University of Minnesota-Duluth, Department of Economics, Summer 20051–14 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.

15. University of Minnesota-Duluth, Department of Economics, Summer 20051–15 Table 1-3 Global Foreign Direct Investment Flows Source: UNCTAD, Handbook of Statistics, various issues and author’s estimates.

16. University of Minnesota-Duluth, Department of Economics, Summer 20051–16 Figure 1-3 Private Capital Flows to Emerging Economies Source: International Monetary Fund, Annual Report, and International Capital Markets, various issues.

17. University of Minnesota-Duluth, Department of Economics, Summer 20051–17 Understanding Global Markets: Some Basic Economic Concepts

18. University of Minnesota-Duluth, Department of Economics, Summer 20051–18 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.

19. University of Minnesota-Duluth, Department of Economics, Summer 20051–19 Table 1-4 An individual Consumer’s Demand Schedule

20. University of Minnesota-Duluth, Department of Economics, Summer 20051–20 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.

21. University of Minnesota-Duluth, Department of Economics, Summer 20051–21 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.

22. University of Minnesota-Duluth, Department of Economics, Summer 20051–22 Some Basic Economic Concepts Table 1-5 An individual Firm’s Supply Schedule

23. University of Minnesota-Duluth, Department of Economics, Summer 20051–23 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.

24. University of Minnesota-Duluth, Department of Economics, Summer 20051–24 Some Basic Economic Concepts Presenting Demand and Supply  Various forms:  Table:Schedule  Graph:Curve  Mathematical Equation: Function

25. University of Minnesota-Duluth, Department of Economics, Summer 20051–25 Some Basic Economic Concepts The 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. Table 1-4 An individual Consumer’s Demand Schedule

26. University of Minnesota-Duluth, Department of Economics, Summer 20051–26 Some Basic Economic Concepts The Supply Schedule  tabulates the minimum price a supplier is willing to accept for various quantities supplied of a good or service. Table 1-5 An individual Firm’s Supply Schedule

27. University of Minnesota-Duluth, Department of Economics, Summer 20051–27 Figure 1-4 The Demand for and Supply of Gasoline

28. University of Minnesota-Duluth, Department of Economics, Summer 20051–28 Some Basic Economic Concepts Determinants of demand and supply  What factors influence demand and/or supply?

29. University of Minnesota-Duluth, Department of Economics, Summer 20051–29 Demand Factors  Changes in consumer preferences  Changes in income  Changes in the prices of related goods  Changes in the number of consumers Factors Influencing Demand and Supply

30. University of Minnesota-Duluth, Department of Economics, Summer 20051–30 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

31. University of Minnesota-Duluth, Department of Economics, Summer 20051–31 Table 1-6 Factors Influencing Demand

32. University of Minnesota-Duluth, Department of Economics, Summer 20051–32 Table 1-7 Factors Influencing Supply

33. University of Minnesota-Duluth, Department of Economics, Summer 20051–33 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 Quantity Demand Curve

34. University of Minnesota-Duluth, Department of Economics, Summer 20051–34 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 Quantity Supply Curve

35. University of Minnesota-Duluth, Department of Economics, Summer 20051–35 Copyright©2003 Southwestern/Thomson Learning Price 0 Supply Demand Quantity P0 QdQs Market Price =

36. University of Minnesota-Duluth, Department of Economics, Summer 20051–36 Some Basic Economic Concepts Why do consumers and producers participate in the market?  Consumer and producer surplus

37. University of Minnesota-Duluth, Department of Economics, Summer 20051–37 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

38. University of Minnesota-Duluth, Department of Economics, Summer 20051–38 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.

39. University of Minnesota-Duluth, Department of Economics, Summer 20051–39 Figure 1-5 Consumer and Producer Surplus

40. University of Minnesota-Duluth, Department of Economics, Summer 20051–40 Some Basic Economic Concepts How Market Prices Are Determined  Market prices have the tendency to move to the equilibrium (center)

41. University of Minnesota-Duluth, Department of Economics, Summer 20051–41 Copyright©2003 Southwestern/Thomson Learning Price 0 Supply Demand Surplus Quantity P0 P1 Qd Qs Surplus( Excess Quantity Supplied)

42. University of Minnesota-Duluth, Department of Economics, Summer 20051–42 Shortage (Excess Quantity Demanded) Copyright©2003 Southwestern/Thomson Learning Price 0 Quantity Supply Demand Quantity supplied Quantity demanded P0 Shortage P1

43. University of Minnesota-Duluth, Department of Economics, Summer 20051–43 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)

44. University of Minnesota-Duluth, Department of Economics, Summer 20051–44 Figure 1-6 The Equilibrium Market Price

45. University of Minnesota-Duluth, Department of Economics, Summer 20051–45 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

46. University of Minnesota-Duluth, Department of Economics, Summer 20051–46 EXPORT Copyright©2003 Southwestern/Thomson Learning Price 0 Supply Demand Excess domestic supply Quantity P0 P1 Qd Qs

47. University of Minnesota-Duluth, Department of Economics, Summer 20051–47 IMPORT Copyright©2003 Southwestern/Thomson Learning Price 0 Quantity Supply Demand Quantity supplied Quantity demanded P0 Excess Domestic Demand P1

48. University of Minnesota-Duluth, Department of Economics, Summer 20051–48 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.

49. University of Minnesota-Duluth, Department of Economics, Summer 20051–49 Figure 1-7 The Global Coffee Market