Lecture 1: Introduction to

International Economics
About the Course
•   Reference: Course Outline on Moodle
About the Course-Topics
Week Focus

1 Theories of International Trade: Basic Demand and Supply

Theories of International Trade: Comparative and Absolute

2 Advantage
Theories of International Trade: Factor Availability and Factor
3 Proportion Theory

4 Scale Economies, Imperfect Competition and Trade.

5 Tariff Analysis

6 Non -Tariff Barriers

7 Pushing Exports
About the Course
Mid Semester Break

8 Arguments for and Against liberalization

9 Pushing Exports

10 Trade Bloc and Trade Blocks

11 Trade Policies for Developing Countries

12 International Factor Movement

13 Payments Among Nations

14 Foreign Exchange Markets

15 Study Break

16 Exam

17 Exam
Assessment
Activity Date Weighting (%)

Mid Semester TBA 20%

Online Quiz TBA 10%

Assignment TBA 20 %
 Important Note

Please note: For exams, timetables and

venues provided will not be shifted so
students need to ensure that they sit for
the exams on the specified date and time.
No exceptions will be made on grounds of
travelling or work.
Teaching Approach/Exam Tips
Teach what is tested. ??

Grades??

Journal Publication??

Data Analysis??

Trade and Econometrics??

Recent Trade Issues
1. USA Trade War –Donald Trump

2. Regional Economic Integration: ACFTA, TPP, RCEP

3. WTO Multilateralism- some say its future is bleak??? Others

say time to break up from this relationship, some still want to
retain multilateralism.

4. 4th Industrial Revolution, influence of Artificial Intelligence.

Change in business models…how would nations be affected??
International Economics
•   International Economics
•   The course on International Economics will be divided into
two areas, International Trade and International Finance
•   International Trade
•   Simply is the merger of two countries macroeconomic
allocation of resources.
•   When does it happen? When countries open borders-i.e. Trade
liberalization takes place.
Reflection???
1. Why do countries trade? What is the basis for trade,
especially the product (commodity) composition?

2. For each country, what are the overall gains (or losses) from
trade?

3. What are the effects of trade on each country’s economic

structure? Production, Consumption.

4. What are the effects of trade on the distribution of income

within each country? Winners, Losers.
International Trade
•   Why do Nations need to Trade?

•   Lower prices- when export and import happens, that is trade

takes place, there is exchange of goods, as the supply of the
goods increases, prices are reduced.
•   Consumer benefits- Consumers have more choice. Quality
products at lower prices
•   Producers in the middle value chain of production benefit-
cheaper access to raw materials that are used in the value
addition to produce final good
International Trade
•   Gains from Trade

•   Countries gain by obtaining cheaper input materials thus

greater access to resources.

•   Also through trade exports result in inflows of foreign

currency, which improves a countries BOP, these foreign
currency is then used to purchase other goods. Example,
Fiji needs to import oil, oil is traded in USD, therefore
Fiji exports textile and using the foreign dollar then
imports oil.
International Trade
•  Gains from Trade
•  Economies of Scale is achieved
•  Increased Competition as domestic and
foreign firms compete in a country thus
creating efficiency
•  Efficient allocation of worlds resources in
a free market.
 Losses from International Trade
•  In real world scenario, not all nations are
the same. Some are developed, others are
developing and some are LDCs. Now the
Gains identified in real world depends on
the negotiating leverage a country has and
the resource capacity.
(An insight, to be discussed later in the
course).
Demand and Supply
Factors affecting Demand and Supply of a good in
Country A.
Demand
Price of the good
Taste and fashion income
Price of other products (substitute)
Supply
Price of the good
Price of raw material
Price of Labour
Technology
Domestic Market
Scenario 1: Domestic Trade. Market for Sugar
Domestic Market
•  Impact
 Effects
The Effects of Trade onof Trade
Well-Being on Welfare
of Producers, Consumers,of
and the Nation as
a Whole
Consumer, Producer and ROW
 Trade Liberalisation: Opening of
Markets
•  Assume that markets are opened (trade
liberalization) happens.
•  As markets are opened there will be entry of
many producers i.e. importers
•  There will be massive number of suppliers. The
world commodity market will be fixed. Meaning
supply curve will be horizontal (perfectly elastic)
and world price will be fixed
 Trade Liberalization
•  Impact on Domestic Market
•  With lower prices more consumers will buy the
product
•  With lower prices domestically less producers
domestically will be supplying the market and the
rest of the supply will be covered from exporters
•  Result: Domestic Revenue will decline
•  World Revenue will increase
 Trade Liberalization
•  Impact Consumers will gain.
•  Importers of raw materials that the
product as intermediate good will
benefit
•  But the producers of final product will
lose revenue in the domestic market.
END