The other side of outsourcing video

Chapter 1 Introduction Prepared by Iordanis Petsas Preview 1. What is international economics about? 2. International trade topics Gains from trade, explaining patterns of trade, effects of government policies on trade 3. International finance topics Balance of payments, exchange rate determination, international policy coordination and capital markets 4. International trade versus finance 5. Why has world trade grown? Slide 2 What Is International Economics About? International economics is about how nations interact through: trade of goods and services, flows of money, and investment. International economics is an old subject, but continues to grow in importance as countries become tied more to the international economy. Nations are now more closely linked than ever before. Slide 3 What Is International Economics About? (cont.) U.S. exports and imports as shares of gross domestic product have been on a long-term upward trend. International trade has roughly tripled in importance compared to the economy as a whole in the past 50 years. Both imports and exports fell in 2009 due to the recession. Slide 4 Fig. 1-1: Exports and Imports as a Percentage of U.S. National Income Slide 5 What Is International Economics About? (cont.) Compared to the United States, other countries are even more tied to international trade. Their imports and exports as a share of GDP are substantially higher. The United States, due to its size and diversity of resources, relies less on international trade than almost any other country. Slide 6 Fig. 1-2: Average of Exports and Imports as Percentage of National Income in 2011 Slide 7 Gains from Trade That there are gains from trade is probably the most important insight in international economics. Countries selling goods and services to each other almost always generates mutual benefits. 1. When a buyer and a seller engage in a voluntary transaction, both can be made better off. Norwegian consumers import oranges that they would have a hard time producing. Slide 8 Gains from Trade (cont.) 2. How could a country that is the most (least) efficient producer of everything gain from trade? • Countries use finite resources to produce what they are most productive at (compared to their other production choices), then trade those products for goods and services that they want to consume. • Countries can specialize in production, while consuming many goods and services through trade.