International Economics

KENYATTA UNIVERSITY
SCHOOL OF ECONOMICS

DEPARTMENT OF APPLIED ECONOMICS

EAE 307: INTERNATIONAL ECONOMICS I

INSTRUCTOR: P. M. KUUYA

SCHOOL OF ECONOMICS

DEPARTMENT OF APPLIED ECONOMICS EAE 307: INTERNATIONAL ECONOMICS I

LECTURER: P. M. KUUYA

TABLE OF CONTENTS 1

LECTURE ONE 6
1.0 INTRODUCTORY LECTURE 6
1.1 Why We Study International Economics 8
1.2 The Subject Matter of International Economics 11

LECTURE TWO 14

2.0 FIRST INTERNATIONAL TRADE THEORY 14
2.1 Introduction 14
2.2 Early Trade Theory: The Mercantilist Doctrine 15
2.3 Mercantilist Beliefs 16
2.4 How Mercantilists Achieved Their Objectives 18
2.5 Commentary on Mercantilism 18

LECTURE THREE 20

3.0 CHALLENGES TO MERCANTILIST DOCTRINE 20
3.1 Introduction 20
3.2 Free Trade Theory 21
3.3 Adam Smith’s Contribution to the Theory of Trade 22 3.3.1 Smith’s Theory of Absolute Advantage 23
3.4 David Ricardo’s Contribution to the Theory of Trade 24 3.4.1 Ricardo’s Theory of Comparative Advantage 25
3.4.2 Use of Modern Concept of Opportunity Cost to Explain the
Theory of Comparative Advantage 26
3.5 Group Activity in Class 27

LECTURE FOUR 22

4.0 THE RICARDIAN