International Economics (Nhi)

International economics is the field of economics that is concerned with the

economic interactions of different nations as well as the economic interactions
between nations and international institutions.

→ Mainly focus on International Trade

Trade between Nations: Export & Import

→ Looking at factors influencing a nation’s ability and willingness to import & export
goods, including conditions that make international trade beneficial for countries.

→ Explained using the law of comparative advantage

📌
Theory: countries will export goods that have relatively
The low opportunity costs at home and import those that
Ricardian have relatively high opportunity costs.
Model 2 products, 2 economies, 1 factor of production (labor
(David L)
Ricardo)
What drives trade? → differences in labor productivity
Law of
comparative Assumptions: perfect competition, homogenous labor
cost How does trade affect the economy?
advantage
Comparative advantage creates gains from
trade (ex. welfare gains)

Countries (either fully or partially) specialize

according to their comparative advantage

📌
2 products, 2 economies, 2 factors of production (labor L &
The capital K)
Heckscher- What drives trade? → differences in resource endowments
Ohlin (ex: differences in the relative abundance of factors of
Model production)

Assumptions: perfect competition, homogenous labor

How does trade affect the economy?

International Economics (Nhi) 1

 ⇒ Owners of the country’s abundant factor gain from trade, but owners of a
country’s scarce factors lose
⇒ Why?
When countries trade a final product with one another, they are also indirectly trading
the factors of production used in that product (ex: the hours of labor, hours of
capital/land usage,…)
⇒ HOWEVER in the real world, there’s no full factor price equalization.
BECAUSE: both countries may not produce both products; differences in tech;
protectionism!

Internal & External Economies of Scale

Economies of scale: occurs where production is more efficient (lower cost per unit)
as we increase the quantity of production (ex: if double inputs → more than double
output)

Internal economies of scale:

The cost per unit of production depends on the size of an individual firm, but not
necessarily the size of the industry…

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 CC curve: The more firms there are in the industry, the higher the average cost

PP curve: The more firms there are in the industry, the lower the price they
charge

Equilibrium in a Monoplistically competitive market.

Relationships:

more firms → more intensely compete → lower price (PP)

more firms → less each firm sells → higher industry’s average cost (CC)

⇒ price > average cost → industry making more profits → additional firms enter
⇒ price < average cost → industry incurring losses → firms leave
⇒ equilibrium price & n. of firms at the intersection of PP & CC.

Trade Policy (Protectionism)

Import tariff

Import Quota

Voluntary export restraints (VERs) - [hạn chế xuất khẩu tự

nguyện]
a quota on exports rather than imports:

An exporting country will offer this in a trade agreement to appease the

importing country

...and thus deter it from imposing its own protectionism, which is usually less
flexible!

International Economics (Nhi) 3

 Export subsidies

Other protectionist measures:

Domestic price controls (price floors/ceilings)

Tied procurement laws (ex: gov. departments must buy domestically)

Exchange rate manipulation

Intellectual property laws

Quarantines

Embargos [cấm vận]

Product standards

Developing country challenges

International Economics (Nhi) 4

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