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International Economics
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This document contains all notes from the course of international economics, including a number of practice questions that may be useful for the exam.
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International EconomicsLecture 1
Q. What is economics?
A. The study of the Economy
Q. What is Economy?
A. Deals with everything we produce, consume, buy, sell. People, companies, governments.
Prosperity, wealth, money, work. Products/goods. Scarcity. Prices. Trade.
It’s hard to think of something to which an ‘economic dimension’ cannot be attached
Law of supply and demand
- The price of a product is determined by Supply and demand
- Demand ↑ è Price ↑ (and Demand ↓ è Price ↓)
- Supply ↑ è Price ↓ (and Supply ↓ è price ↑)
Economy cont’d Two main issues
1. Size What determines our total prosperity?
2. Distribution How is the total prosperity divided?
Business
- Internal environment
-> Can be controlled (to some extent)
- External environment
-> Maybe some influence, but cannot be controlled. So the company can only adapt
-> The impact of external/economic developments can be very serious and drive
companies out of business!
Two opposites of the market
, 1. Free market
2. Market with much government intervention (Former soviet union, Cuba, North Korea, former
China)
* And in ‘between markets’ with some selective government intervention.
Demand curve
The relationship between price and the quantity demanded can be expressed as an equation, for
instance:
q = -2p + 600
Where: q = The quantity demanded
p = the price
Price elasticity (of demand) (Epq)
The % of the change in quantity demanded in response to a 1% change in price
Epq = %Δq / %Δp
Where: %Δq = the % change in quantity demanded
%Δp = the % change in price
Basic Goods 0 < Eqy < 1
Luxury Goods Eqy > 1
Inferior Goods Eqy < 0
Epq is NOT constant, but changes along the curve!
Elastic Epq< -1 (-2 / +2)
Inelastic -1 < Epq < 0 (-0,,5)
Example:
Q = -2p + 600 and price is raising with 1 %
First stade Second stade
p = 200 p = 200 * 1,01 = 202
q = 200 q = -2*202 + 600 = 196. So -2%
Epq = -2% / 1% = -2%. So in conclusion the demand is elastic
Income elasticity (of demand) (Eqy)
The is the income elasticity of the demanded
Epy = %Δq / %Δy
Where: %Δq = the % change in quantity demanded
%Δy = the % change in income
Company cost (individual)
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