IB 150 Lecture Notes - Lecture 10: Marginal Cost, Chemical Industry, New Trade Theory

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IB 150 – Lecture 10
International Treaties
Some Things Economists Actually Agree On
People face tradeoffs, ex: no economics about air because everyone can have it
The cost of something is what you give up to get – opportunity cost
Rational people think at the margin – marginal cost
People respond to incentives
Prices rise when governments print too much money = inflation
Governments can sometimes improve market outcomes
Trade can make everyone better off – if you are not better off you wouldn't trade
The Impact of Trade Policies
1970: GNP/capita was $250
1992: GNP per capita was $450 and GNP Growth/year was 1.5%
2015: GNP per capita $4,300
1970: GNP/capita was $260
1992: GNP per capita was $6,790 and GNP Growth/year was 9%
2015: GNP per capita $36,700
these two nations treat treaties differently
Mercantilism (1500-1800 a.d.)
a Scottish historian, philosopher, economist, diplomat and essayist known today especially for
his radical philosophical empiricism and scepticism.
An economic philosophy based on the belief that a nation’s wealth depends on accumulated
treasure, usually gold
Policy implications: to increase wealth, government should promote exports and discourage
imports: trade surplus
Some countries still practice it, ex: japan and china exported a lot of products to the west and
having more tariffs on the imports
Critique by David Hume (1752)
Is trade a zero-sum game?
A tinge of colonialism?
David Hume
Country A surplus with Country B
Increased export leads to inflation and higher prices in Country A
Increased imports lead to lower prices in Country B
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