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Chapter 8 - Chapter 8 International Trade Theories of Trade...

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Chapter 8: International Trade * Theories of Trade - International Trade amounts to 1/6 of total economic activity in world - Economic and political issue as trade crosses state-defined borders, regulated by states, pressured by interest groups, occur within trade regimes negotiated by states - International Political Economy: study politics of international economic activites * Trade, Monetary relations, Multinational corporations * Economic integration of Europe/other regions and International politics of global environment * Liberalism and Mercantilism - Mercantilism: each state must protect own interests at expense of others * emphasize relative power * importance of economic transactions lies in implications for military * relative power and trade => military power * emphasizes conflicting interests in exchanges * goal: create favorable distribution of wealth * Economics should serve politics: creation of wealth underlies state power * trade desirable when distribution of benefits outweighs rivals * 18 th century: creation of trade surplus to stockpile money in form of precious metal to buy military capabilities * serve state’s political interests: at cost of wealth free trade may have made * balance of trade: value of state’s imports relative to exports - country exports more than it imports: positive balance of trade (trade surplus) - country imports more than it exports: negative balance of trade (trade deficit) - Economic Liberalism: possibility of cooperation to realize common gains * building international organizations/norms, states mutually benefit * matters states wealth is increasing in absolute terms * Western economics, microeconomics (firms and households) * emphasizes shared interests in exchanges * goal: maximize wealth by achieving optimal efficiency (maximize output) * believe in markets, bargaining space = difference between lowest price seller will accept and highest price buyer would pay * Interdependence promotes peace - Theories of economics, ideologies that shape state policies - Marxism: economic exploitation as force that shapes political relations - Exchanges have mix of joint gain through cooperation and mixed interests - Both benefit from trade (shared interest) but one will benefit more (conflicting) - Market competition when many buyers and sellers in market - Market price: effort to raise price would drive buyer to seek another seller - Bilateral relations less important than they are in security affairs - world market reduces leverage one state can exert over another - Demand curve: higher the price, less buyers willing to buy it - Supply curve: lower the price, less sellers are willing to sell it
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- Equilibrium price: supply and demand curves intersect - Instability in major commodity => political action in IPE - without government intervention => invisible hand work out efficient patterns of production, exchange, consumption - Free trade: flow of goods and services unimpeded by tariffs or restrictions * Comparative Advantage - overall success of liberal economics due to substantial gains through trade
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