Chapter 1

Introduction
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What Is International Economics

About?

• International economics is about how nations interact through

trade of goods and services, through flows of money and through
investment.
• International economics is an old subject, but it continues to grow
in importance as countries become tied to the international
economy.
• Nations are more closely linked through trade in goods and
services, through flows of money, and through investment than
ever before.

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 Pilares del Curso

R H K
-
D i e r
c P
a c O u
k a
v a h g
s u
i r l m
h
i l
d d e a
n
o r n

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Economía Internacional

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Patrones de comercio tradicionales

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Bienes
Servicios

Personas Dinero
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Israel Macías-López. imacias@up.edu.mx 1-7

Gains from Trade

• Several ideas underlie the gains from trade

1. When a buyer and a seller engage in a
voluntary transaction, both receive something
that they want and both can be made better
off.
• Norwegian consumers could buy oranges through
international trade that they otherwise would have
a difficult time producing.
• The producer of the oranges receives income that
it can use to buy the things that it desires.
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 What is International Economics
about?

• There are seven recurrent topics in IE:

 Gains from trade
 Patterns of trade
 Protectionism
 Balance of payments
 Exchange rate determinants
 International policies coordination
 International capital markets
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Patterns of Trade

• Differences in climate and resources can explain why

Brazil exports coffee and Australia exports iron ore.
• But why does Japan export automobiles, while the
US exports aircraft?
• Differences in labor productivity may explain why
some countries export certain products.
• How relative supplies of capital, labor and land are
used in the production of different goods may also
explain why some countries export certain products.

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 International Finance Topics

• Governments measure the value of exports and

imports, as well as the value of international
financial capital that flows into and out of their
countries.
• Related to these two measures is the measure of
official settlements balance, or the balance of
payments: the balance of funds that central banks
use for official international payments.
• All three values are measured in the government’s
national income accounts.
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International Finance Topics

• Besides international financial capital flows and the
official settlements balance, exchange rates are also an
important financial issue for most governments.
 Exchange rates measure how much domestic currency
can be exchanged for foreign currency.
 They also affect how much goods that are
denominated in foreign currency (imports) cost.
 And they affect how much goods denominated in
domestic currency (exports) cost in foreign markets.

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 What Is International Economics
About?

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Real Exports & Imports for the U.S.

2005 USD. Source: U.S. Bureau of Economic Analysis
$2,500

$2,000

$1,500

$1,000

$500

$0
19801982198419861988199019921994199619982000200220042006200820102012

Exports Imports
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Real Exports & Imports for the U.S.
2005 USD. Source: U.S. Bureau of Economic Analysis
$2,500

$2,000

$1,500

$1,000

$500

$0
19801982198419861988199019921994199619982000200220042006200820102012

Exports Imports Lineal ( Exports) Lineal ( Imports)

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 Real Exports & Imports for the U.S.
2005 USD. Source: U.S. Bureau of Economic Analysis
$4,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$500

$0

Exports Imports Lineal ( Exports) Lineal ( Imports)

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Israel Macías-López. imacias@up.edu.mx 1-19

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 Índice de Apertua

EXP  IMP
IA 
PIB

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What Is International Economics

About?

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 What Is International Economics
About?

• International trade as a fraction of the national economy

has tripled for the US in the past 40 years.

• Compared to the US, other countries are even more tied

to international trade.

• IE is more important for other countries than to the

U.S.
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Índice de Apertura de México

80%
70%

60%

50%

40%

30%

20%

10%

0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
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 Lectura asignada

• Leer el capítulo 2 del texto.

• Hacer por equipos la Tarea 1

localizada en Moodle.

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