So, as you may know, I teach IB economics here in Santiago, Chile. The thing is like a lot of people don’t really understand what is meant by international economics. When somebody studies international economics, what are they studying politics, are they studying economics from like, you know, most people sort of understand the basic under the basic things of like microeconomics or macroeconomics. This is because a lot of adults have taken micro to macroeconomic courses. But international economics is something that not that many people are familiar with. So I just thought I’d take a little brief second here, do a little video on, like trying to send out there, and, you know, it is a simple message about what international economics is.
Now this video is going to be short and is not designed to give you all the details. If you want more information on each of the sections that I’m going to talk about of what I studied in international economics, check out the rest of the videos.
International Economics And Development Economics
On this channel, and by the way, there are like 300 videos that cover the entirety of macroeconomics microeconomics theory of the firm international economics and development economics. If you’re an IB student AP student, or university-level student and you’re interested in more information on international economics, check out all of the other videos on this channel. This is just to give you a clear idea of what a study in a course of international economics is. So the basic idea of someone who studies international economics is you start understanding or trying to learn, looking at I should say of like this the answer to this very simple question like why do countries trade, like, why would a country whose very powerful say like the United States, be interested in trading with other people because the United States is a massive country.
They have the Midland states is a house with inside its own borders all of the ingredients to be the economic power that it is. It’s the perfect ingredients to have all of the stuff in the ground and around it oil coal natural gas, copper, gold food sources massive planes massive amounts of people great industry development a high level of education to produce and D. The economic leader of the world, so why would someone like them want to trade with the smaller country, say like Panama. Well, this unit looks at what are the gains from trade-in and looks at 2 very important theories. One is called an absolute advantage. Another is called comparative advantage, and those look at it like when somebody has absolutely no vantage needs, they can produce more for less than someone else.
So this is like 2 different countries, right? International economics talks about trade and interaction between 2 different countries. One country might have absolutely vanished in producing everything, but they don’t necessarily have the comparative advantage in a comparative vanished TV. TV takes a look at what the opportunity cost is. An opportunity cost is a very fancy way, but not that fancy, but a way of saying if the country produces one product, what can they not produce and the value of the thing that they’re not producing.
Creates an opportunity cost for a country, so if a country is produced can produce more but there has to be more than another country to produce it than they’re not going to have the comparative advantages of comparative advantage. Looks at one product between 2 countries and they say okay, so country B can produce more of this, but they have to give up more than country B to produce it, so country B.
World Trade Organization
While they might not be as efficient or produce as much, they are the country that we want to have produced the good because they can do it for a lower opportunity cost. In other words, what they have to give up is his last part. What country do you have to give up in is last? In the country A has to give up to use the same good, so in the world specter what we want is country B. To make that could not country day we will cut you A to make what they want. They can where they have the comparative advantage and competitive edge. It is pretty cool, okay, international trade is governed by the World Trade Organization.
It is a kind of controversial thing out there for four, you know, in world politics, but it is. Think of it as like the United Nations of trade. If the United Nations takes care of all, you know, that the governing world body of politics. The World Trade Organization is sort of set up to be the governing world body of economics. Okay, then as you continue your studies you will move into a section called free trade and protectionism, and that takes a look at what the benefits are of free trade. And then also why countries protect themselves like what are the arguments for and against protectionism and there are 3 main ways the government works.
Protective Quotas Or Tariffs Subsidies
Sort of put up protective barriers for the country. One is protective tariffs. Another’s protective subsidies, and another is of course protective quotas or tariffs or subsidies. And quotas are the most common, and, you know, in the news in the last couple years there has been a lot of information about terrorists. because that is basically putting a tax on goods coming into our country from other countries subsidies or handouts by the government or support financial support by the government of one country to its industry within its own country.
To make that country’s industry more productive, so let’s say, like the United States gives an enormous amount of money to test labs so that they can not create cars to create better batteries, and they may be doing that because the United States has an interest in Tesla. Out of its own company being the best at making batteries in the long run. So they put a subsidy there to make sure that some other country doesn’t produce a or create a company. Companies in the country don’t come in, and, you know, owned the arm battery market, okay, and the quota is a physical limit put on goods coming into a country.
Borders between countries
So just imagine like old school, you know, like the borders between countries, like they count the bushels of corn that come into the country. When they get to a certain, you know level like 100000 bushels like slam, they shut down the borders and that would be a protective quota so that only so many goods can come in from outside the country into its own country. All of these are done by the way. All of these are done in the relationship between one country and another.
So it would be like, you know what the United States out of for some reason didn’t want Canada to to Canadian beef to come into the United States. They could put a quote on it and they would just count them up, you know. I don’t know pounds of beef to come to the United States, and as soon as they get to that limit, boom later, no more be from Canada for the next year or for the rest of the existing here, and then your studies of economics, international economics would move into the.
The study of exchange rates is super interesting because exchange rates talk about, of course, the value of one currency regarding another currency. There are 3 different types of exchange rate systems. There are fixed. There’s the fixed exchange rate system group, the floating exchange rate system, and the fixed exchange rate system fixed is at an exchange rate system, or one country, usually smaller developing nations whose currency is not as desirable on the international market, will fix their currency to another currency. A good example of this would be like Barbados fixes its Barbadian dollar to the U. S. dollar, which means that the government maintains the same relationship. Say like 2 Barbadian dollars to one US dollar, a floating exchange rate is like what you might be familiar with if you move around the world, which is where.
You know, the currency of the country is allowed to flow in the international market in international markets called the forex market, the foreign exchange market, and as a result it’s just, you know. It’s susceptible to this man who is blind and desires of the free market regarding if people want that currency and that’s based on a lot of different stuff. Check out the video in exchange rate if you want more information on that, and then another one is the mix exchange rate system or a managed exchange rate system, same thing, and that’s where the government sets like a legal.
It’s like a high and low for its exchange rate and allows it to sort of flow in between. So I live in July, and the Chilean peso in the 8 years I’ve been here is floated between 400 and 50 pesos to the U. S. dollar, an hour to 800 pesos to the U. S. dollars. I think the Chilean government just allows it to, floating between that and it fluctuates and that’s an example of sort of a managed exchange rate system.
Okay, then as you move on in your studies of international economics you will move into work in the study of balance of payments, which is a fancy way of just saying you know what. It is the way accounting is accounting. It’s like a big checkbook for a country and countries will take a look at how much flow is moving out of the country regarding cash.
How much hello is turning it into their country so as to flow outward of cash, and then the flow inward of cash, and then that is the balance of payments. There’s different accounts and it gets all technical and it sounds all confusing, but if you know how to balance a checkbook you understand the balance of payments. There’s the current account of the capital town, the Financial Times, just different types of income, different kinds of money flows to come in and out of a particular country, and that’s studied international economics.
Understanding of economy
That sounds like, you know, I’m saying it’s not that big a deal, but it’s really critical to the overall understanding of economy because if there’s more money flowing out of Chile than there is flowing in that’s going to create some long-term problems for the Chilean economy because it’s not depending too much on you know imports full of it’s good which would affect its exchange rate and it gets more complicated but the balance of payments is the fourth. You did a study in almost all the international economic courses, and the last 1 is economic integration, which we have a beautiful example.
Now that, not now my goodness for the last 3040 years depends on when you consider it to have started which of course is the European Union, which is an amazing example. It’s not anything. It’s an example of economic integration, which means that countries go from just being basically trading partners to being fully integrated, which means, like completely integrated, a completely integrated economy where they. Where they share the same currency, that same central bank, in the same fiscal policies, in monetary policy, but they’re in different stages of getting there, in fact.
Guess what, there are 6 stages of economic integration, starting from just being bilateral trading partners to full economic integration. The thing that’s interesting about act it economic integration is the comp the countries in the countries in the European Union like they have to give up a lot of sovereignty to join a larger economic union, and the European countries who are fully in the European Union have done that, which is pretty amazing.
I’m, if you want a match in a picture, just one last little thought here. Imagine a picture of what economic integration would look like in its fullest form like a fully integrated economic, that is, fully integrated, economic system between countries. Just if you can picture the United States, this is the United States made up of 50 different states. Right, of course, is one country, but to go into a fantasy world for a second imagine if each one of those 50 states were its own individual country.
Full Economic Integration
Then, they agreed to have one central bank in Washington DC, one currency, the dollar, and won an agreement on who’s going to control their fiscal and monetary policy. The US government wanted this entity in Washington DC the political people in Washington DC and then you would have a great example of full economic integration, and of course the European Union’s not there yet by design, because while they have a European central bank, while they have a European Parliament.
There are the individual countries you know France, Germany, Italy, and other European nations still have enormous amounts of political power inside their own country, so they’re just working towards it. But if you imagine the United States as 50 different countries that are fully integrated into the economy, then you understand what full economic integration would look like. I’d. So there it is. There’s what you study in international economics is why do countries trade free trade to protectionism, exchange rates, balance of payments and economic integration.
Well, there you have it a quick little run-through of exactly what is meant by international economics. And it’s fascinating what international economics will teach you because it’s in the news all the time and of course it’s like one of those things that you know the more you learn the more you see it the more you learn the more you see it. But understanding house change rates work how tree works how free trade works, how terrorists were quoted subsidies all these things they’re in bed in the study of international economics will really really help you understand not just the world around you but the specifics about government policies.
Politicians talk about trade all of the time and a thorough understanding of international economics will really, help, all right. So congratulations on being curious on this. If you’re launching into your studies of international economic solutions, you are going to end up being incredibly informed. Arriving after endless hours hours in this world really is our classroom. You need to move about this world with an open all right. I love the heart and the key sense of what exactly is going on, and of course the studied economics will really help you do so all right. Take care of yourselves out there, my friends, being good to one another as well. We’ll talk to you.