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International Economics

International economics is defined as a branch of economic science which concerns and studies with the causes & consequences of economic interactions between the nations. International economics studies how economic interaction b/w the nation’s leads to inter-country & intra-country allocations of scarce resources aimed at increasing the economic well-being of their people. International economics studies the trade policy of the nations, basis of international trade, and international flow of capital, balance of payment problems, the problem of international debts, and the various forms of international economic cooperation.

International economics is generally divided in two main branches

(i) Pure Theory of International Trade so called Positive International Economics

(ii) Welfare Economics of Foreign Trade or Normative International Economics. The positive international economics seeks to answer the following questions.

• What is the basis of international trade or Why do nations trade?

• What are the main gains from international trade?

• How the gains of foreign trade are distributed b/w the nations?

• What factors lead to international division of labour?

• How is the foreign exchange rate determined?

• How the payment problem is settled b/w the trading partners?

• Why does disequilibrium arise in the balance of payment position?

• What factors lead to international economic cooperation?

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