The Six Stages of Economic Integration (Holiday Special!)

In the first stage of integration my trading partners gave to me, access to certain products duty free! This special holiday lesson will introduce the different ways nation’s economies integrate with one another and remove trade barriers, from the lowest level of preferential trade agreements to complete economic integration! All with a little holiday cheer and some singing thrown in for good measure!

Calculating Exchange Rates from Linear Equations

An exchange rate is simply an equilibrium price in a market for a currency, and like the prices of other goods, services and resources, a currency’s value can be calculated if the equations for supply and demand are known. This lesson will demonstrate how to calculate an equilibrium exchange rate from linear equations, and in part 2 demonstrate how an intervention by a central bank can lead to a change in demand or supply of a currency and thus trigger a change in its value.

Part 1:

Part 2:

Managed Exchange Rate Systems part 2

To avoid the volatility and uncertainty that often accompany a floating exchange rate, some governments and central banks choose to manage or peg their currency’s value against another currency. This lesson explains the tools by which an exchange rate can be managed and maintained within a range of values, using the Swiss National Bank’s decision to peg the Swiss franc against the euro in 2011 as an example.

Managed Exchange Rate Systems part 1

To avoid the volatility and uncertainty that often accompany a floating exchange rate, some governments and central banks choose to manage or peg their currency’s value against another currency. This lesson explains the tools by which an exchange rate can be managed and maintained within a range of values, using the Swiss National Bank’s decision to peg the Swiss franc against the euro in 2011 as an example.


The Gains from International Trade in a Demand and Supply Diagram

International trade results in an increase in efficiency and total welfare among consumers and producer in the countries that participate in it. This is a thesis presented by advocates of free trade all the time. This lesson provides a simple illustration of the gains from trade experienced by an exporting and an importing nation, showing the increases in consumer and producer surplus and total welfare resulting from specialization based on comparative advantage.

The Gains from International Trade in the PPC Model

Now that we’ve established the difference between absolute and comparative advantage, we can proceed to how countries stand to gain from trade when they specialize in and produce the goods for which they have a comparative advantage. In this lesson we will explain how a “real exchange rate” can be determined between two goods and two countries that is mutually beneficial for both countries and then show how trade can increase the total possible level of consumption and effectively shift the PPC curve outwards.

Determining Absolute and Comparative Advantage

Why do nations stand to gain from trading with one another, and how should a nation determine the goods it should specialize in and which it should import? To answer these questions we must introduce some basic concepts of International Trade: absolute and comparative advantage. This lesson introduces these two concepts and uses a simple PPC model to determine how two countries should allocate their resources towards the production of a particular good to maximize the benefit they derive from trading with one another.

In the next lesson we’ll learn how to illustrate the potential gains from trade in the PPC diagram.