Econ 333 ch1 f09

Econ 333 ch1 f09 - Econ 333 International Economics Fall...

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Econ 333 International Economics Fall 2009 Helen Roberts
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Why International Economics? Increasing interdependence: “U.S. sneezes and Europe gets pneumonia” (old) Now the world gets pneumonia. 1975–2005 – world trade increased by 350 percent Is this good or bad?
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World Downturn—Trade and Production
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What is International Economics? Microeconomics Macroeconomics International economics Book outline chapters 1–11 – microeconomics chapters 12–21 – macroeconomics
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Review of Microeconomics Math of Micro Algebra of Supply and Demand Relationships of Totals, Averages, and Marginals Time Discounting Algebra of Growth Rates
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Supply and Demand 1 If the demand and supply curves are both linear, it is easy to get solutions for the conditions of equilibrium. Demand: P = A - BQ (A and B are positive, so -B is a negative slope.) Supply: P = C + DQ (A and C are vertical intercepts, D is positive slope.) So these are 2 simultaneous equations. The solution values are: Q* = A - C P* = AD + BC B + D B + D
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Supply and Demand 3 Now consider shifts in the determinants of equilibrium (comparative statics). In the algebra, this means shifts in A, B, C, or D. If Demand Shifts Rightward (increase) Increase intercept A (shift curve upward) or decrease B (tilt about vertical intercept which makes the curve more horizontal). Q** = A’ - C where A’ = A + D A, and D A = change in A B + D Since B, D, A and D A are all positive, Q** > Q* and P** = A’D + BC > P* B + D
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Supply and Demand 4 Shift Supply Rightward (increase) Decrease intercept (C), downward
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Econ 333 ch1 f09 - Econ 333 International Economics Fall...

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