İKTİSADA GİRİŞ II

The earliest international trade theory that proves a mutually beneficial trade is the theory of Adam Smith, namely the theory of absolute advantage.

Real exchange rate is the nominal exchange rate weighted by the consumer price index of the two countries.

Currency appreciation is the rise in the value of one currency in terms of another currency in the flexible exchange rate system.

THE IMPORTANCE AND SCOPE OF INTERNATIONAL ECONOMICS

international economic transactions affect the general equilibrium of an economy. The main aim of the economic policies is to attain the internal equilibrium and external equilibrium at the same time. The concurrent equilibrium of the internal and external equilibrium is called general equilibrium of an economy. Internal equilibrium refers to full employment with price stability. On the other hand, external equilibrium refers to equilibrium in the balance of payments.

General Equilibrium refers to the situation of concurrent equilibrium of the internal and external balance of an economy.

Internal Equilibrium refers to the full employment of economy with price stability.

External Equilibrium refers to the balance of payments equilibrium.

General equilibrium is determined by the implementation of two economic policies: (1) expenditure-changing policies, (2) expenditure-switching policies. In other words, internal equilibrium and external equilibrium is achieved by an effective implementation of the expenditure-changing and expenditure-switching policies.

THE IMPORTANCE AND SCOPE OF INTERNATIONAL ECONOMICS

international economic transactions affect the general equilibrium of an economy. The main aim of the economic policies is to attain the internal equilibrium and external equilibrium at the same time. The concurrent equilibrium of the internal and external equilibrium is called general equilibrium of an economy. Internal equilibrium refers to full employment with price stability. On the other hand, external equilibrium refers to equilibrium in the balance of payments.

General Equilibrium refers to the situation of concurrent equilibrium of the internal and external balance of an economy.

Internal Equilibrium refers to the full employment of economy with price stability.

External Equilibrium refers to the balance of payments equilibrium.

General equilibrium is determined by the implementation of two economic policies: (1) expenditure-changing policies, (2) expenditure-switching policies. In other words, internal equilibrium and external equilibrium is achieved by an effective implementation of the expenditure-changing and expenditure-switching policies.

THE IMPORTANCE AND SCOPE OF INTERNATIONAL ECONOMICS

General equilibrium is determined by the implementation of two economic policies: (1) expenditure-changing policies, (2) expenditure-switching policies. In other words, internal equilibrium and external equilibrium is achieved by an effective implementation of the expenditure-changing and expenditure-switching policies.

INTERNATIONAL TRADE THEORY

At the autarky, production possibilities frontier (PPF) and the consumption possibilities frontier (CPF) of a country are identical. In other words, production and consumption points are the same and they are both on the same frontier. It is impossible to consume at an outer point of the PPF. Nevertheless, international trade enables consumers to consume at a point which is outer than the PPF. It means that the CPF of a country is at an outer level than its PPF with international trade.

Terms of Trade

The terms of trade of a country are defined as the ratio of the price of its export commodity to the price of its import commodity. In our hypothetical world of two countries and two commodities, the exports of a country are the imports of its trade partner. Thus, the terms of trade of the latter are equal to the inverse or reciprocal, of the terms of trade of the former. If we take our hypothetical world with Sunland and Lakeland as an example, Pc/Pw is the terms of trade of Sunland since it gives the ratio of the price of its export commodity, corn to the price of its import commodity, wheel. On the other hand, Pc/Pw is the terms of trade of Lakeland since it gives the ratio of the price of its export commodity, wheel to the price of its import commodity, corn. In a realistic world of many traded commodities, the terms of trade of a country are given by the ratio of the price index of its exports to the price index of its imports. The ratio is usually multiplied by hundred in order to express the terms of trade in percentages.