Lecture notes International Trade and Economics (ECON)
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Course
International Trade and Economics (ECON)
Institution
Universidad Autónoma De Madrid
This course is essentially addressed to non-economists and its aim is to get the students familiar with the several basic economic principles, approaches and methods as well as with key issues in the field of international economics, finance and trade.
At the beginning of the course, we will learn...
International Trade and Economy
Evaluation
4 HOMEWORK EXERCISES: 20% (Teamwork – 3 members)
4 MID-TERM QUIZ : 40%
1 FINAL EXAM DURING EXAM WEEK : 40%
Lecture 1 - Introduction: Free Market and Free Trade? What is
International Economics about?
Summary of contents:
Basic principles: the origin and distribution of wealth. The core of Economics: interactions, choices,
resources and markets. The external and internal limits of the markets and the governments.
International Trade and Finance. The transformation of global trade. Understanding Globalization:
origin and evolution.
*Economics: Social Science which studies the production, distribution, and consumptions of
good and services.
*IMF (International Marketing Found): an organization of 190 countries, working to foster global
monetary cooperation, secure financial stability, facilitate international trade, promote high
employment and sustainable economic growth, and reduce poverty around the world .
*Microeconomics vs. Macroeconomics: Microeconomics focuses on individual and business
decisions regarding prices, demand, and supply. Macroeconomics looks at broader economic factors
like national income, inflation, and unemployment.
*Planned Economy: economy in which government decisions determine what goods and services
are produced, how they are produced, and who gets them. The government sets prices and
allocates resources, often aiming for equitable distribution and the fulfillment of societal goals.
*Market Economy: economy which relies on supply and demand to dictate production, distribution,
and pricing. Prices are determined by competition between businesses, and individuals have the
freedom to choose what to produce or purchase based on personal or business interests.
About International Trade and Economics:
*Globalization: The process of interaction and integration among people, companies, and
governments worldwide. It's driven by international trade and aided by information technology.
The Economy is transforming more and more commercial and financial international transactions.
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,This has completely changed the “rules of the game”: Impact on international distribution of
labor, emergence of new players, growing influence of multinational companies & development of
complex global value chains (trade in inputs), acceleration of technological changes & digitalization
(new markets, companies, skills, currencies...), rising inequalities (within and between economies)
…
And created a new life reality: Growing economic, social & political interdependences, change in
the frame of reference for decision making (beyond domestic boundaries), unequal distribution of
gains and losses / risks & uncertainties, close interaction with digital technologies, loss of autonomy
in domestic economic policies, influence on environmental sustainability…
*International Trade: Exchange of goods and services across international borders. It's crucial for
the global economy, allowing countries to access goods and services not available domestically.
*Economic Integration: The process where countries reduce trade barriers to create a more unified
economic region, like the European Union.
What is the GDP, and how to calculate it?
*GDP (Gross Domestic Product): is the total monetary or market value of all the finished goods
and services produced within a country's borders in a specific time period.
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,3 APPROACHES TO NATIONAL INCOME ACCOUNTING :
Expenditure: destination of production
Output: production according to economic activity
Income: distribution of value generated among economic factors (labour / capital)
*National Income Accounting: Measures a country's economic activity. It includes three
approaches: output (value of goods and services produced), income (sum of incomes earned in
production), and expenditure (total spending on final goods and services).
1- Expenditure
*Expenditure on GDP is the total value of spending on goods and services produced within the
borders of a country. It excludes imports since imports are produced in the rest of the world, but
includes exports since exports are produced within the borders of the country.
*Expenditure: the action of spending funds.
In symbols it is written as GDP = C + G + I + (X – M).
GDP = private Consumption + Investment + Government Consumption + (eXport – iMports)
(NET EXPORTS = EXPORTS – IMPORTS = X - M)
2- Output
An output is the amount of something produced by a person, machine, or industry.
GDP = Agriculture + Mining + Energy + Manufacturing + Services
A resource is something we can use and reuse in the production process (ex: work force, machines,
technology…)
An input is something we can only use once (ex: energy, raw materials)
*NDP (net domestic product): GDP – DEPRECIATION
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, *Depreciation: Economic depreciation is a measure of the decrease in the market value of an asset
over time from influential economic factors. Economic depreciation can be analyzed in various
scenarios.
Is GDP a good indicator to measure Well-Being?
Not Really: Food or books are treated no different than guns. Also, GDP only include transactions
through the market and does not consider the environmental impact (noise, pollution, etc.), neither
does not consider leisure time, not quality of life
However, a higher GDP per-capita usually tends to reflect a higher welfare
About the Market Economy
A market is the act of interchanging something.
A market economy is an economic system where two forces, known as supply and demand, direct
the production of goods and services. Market economies are not controlled by a central authority
(like a government) and are instead based on voluntary exchange.
In this system, people give their trust to the market system (meeting demand and supply. The
assumption is that individuals, in pursuing their own interests, often end up serving the interests of
society as a whole liberal assumption of the rational actor.
But this is confusing rational and logical: sometimes the individual pursuit of self- interest can lead
to counterproductive behavior: Internal limits of the market.
It exists also External limits of the market, like the environment, booms and crisis in the financial
market, or the behavior of some “free-riders” (corruption in politics, abuses of public goods…).
These kind of market limits can lead to big economic issues, like Market failures (abuses,
exploitation, perversion, misuses...), or Economic instability (cycles, unemployment, inflation...).
In this case, Economic Intervention (economic policy) by the states and international actors is
needed.
*The equilibrium price is where the supply of goods matches demand. When a major index
experiences a period of consolidation or sideways momentum, it can be said that the forces of
supply and demand are relatively equal and the market is in a state of equilibrium.
*The nominal price of a good is its value in terms of money, such as dollars, francs, or yen.
*The relative or real price is its value in terms of some other good, service, or bundle of goods. The
term “relative price” is used to make comparisons of different goods at the same moment of time.
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