Chapter 1: Introduction to Economics of International Trade
Chapter 1 Summary
LO 1.1 The Meaning and Importance of Globalization
- Globalization is the process of increasing economic interdependence among nations.
- Its key aspects are growing international trade, rising cross-border financial flows, increasing international migration, a tendency toward economic and cultural homogeneity, and an ongoing shift toward private markets.
LO 1.2 International Trade and Finance as Part of International Economics
- International economics includes the study of international trade and the study of international finance.
- International trade uses microeconomic analysis to understand why nations trade and the impacts of trade on consumers, businesses, nations, and the world.
- International finance uses macroeconomic models to understand the domestic economy and the financial implications of its linkages with other national economies.
LO 1.3 The Relationship Between International Trade and Standard of Living
- Nations engaged in international trade experience gains in economic well-being.
- An exporting country benefits as foreign demand raises sales and product prices.
- An importing country gains well-being from an increase in supply and lower product prices.
- Overall, international trade improves a nation’s terms of trade causing production and consumption to increase.
LO 1.4 Demand, Supply, Markets, and the Basic Theory of Trade
- The basic theory of trade is set out using the model of demand and supply.
- International trade occurs as the opportunity for arbitrage arises due to initial differences in product prices between countries.
- International trade leads to a single price in all markets.
- While countries participating in trade experience overall economic gains, producers in exporting countries gain while consumers lose, whereas the opposite is true for importing countries.
