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ECON303 Topic 1 - Semester 1 2010 ECON3003 ECON3003...

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Semester 1 2010 ECON3003 INTERNATIONAL ECONOMICS TOPIC 1 I d i TOPIC 1 Introduction 1
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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 th h through: trade in goods and services flows of money, and investment 2
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What Is International Economics About? (cont.) International trade as a fraction of the national economy has tripled for the US in the past 40 years. Compared to the US many other countries are even Compared to the US, many other countries are even more tied to international trade. Australia has always been more open than the US. 3
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What Is International Economics About? (cont.) Australia: from Blanchard and Australia: from Blanchard and Sheen 3e 2009 4
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Exports and Imports as Percentage of U.S. National Income in 2005 Source: Organization for Economic Cooperation and Development
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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. 2 E th l t ffi i t t i i f t d b 2. Even the least efficient countries can gain from trade – by specializing in production of a few goods and services perhaps to obtain scale economies, while consuming many goods and services through trade 3. Trade benefits a country by making it more efficient when it exports goods which use abundant resources and imports goods which use scarce resources which use scarce resources. 4. Countries may also gain by trading current resources for future resources (lending and borrowing). 6
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Gains from Trade (cont ) Gains from Trade (cont.) Trade is predicted to benefit countries as a whole in several ways, but trade may harm particular groups within a country