Economics

NOTE

This is a new thread of thought about what I understand about economics, how it works, and how it impacts us as individuals. I will continuously learn and journal in this blog, so sometimes there is a possibility of reaching wrong conclusions or misinterpreting things. Take everything with a grain of salt.

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What is Economics?

Let’s start with the question: what is economics? For what I understand, we live in a world where resources are limited (scarcity of oil, coal, land, etc.). So what we do in order to survive or get basic essentials from others is trade.

In simple terms:

Economics is all about decision-making and managing resources to satisfy our wants.

Chapter 1: International Trade

Why do countries trade with each other? It is to have a comparative advantage (productivity and specialization). What I mean by that is:
Example: India is one of the largest exporters of engineering goods and pharmaceuticals and imports oil from other countries.

What happens if a country opens up to international trade?

Well, it depends on the product. Usually, product prices are restructured based on global markets.
In most casets the prices gets lower Bad news for domestic manufacturers:

• They have to sell at lower margins
• Companies may scale down
• Layoffs may happen

Good for consumers:

• They get goods for cheaper prices

Government Intervention

So governments usually want to protect domestic producers by restricting trade. They do this by adding tariffs (tax on foreign sellers), which leads to a rise in prices. In the end, consumers have to buy goods at higher prices.

Trade Deficit = Imports − Exports

• If the result is positive → deficit
• If exports > imports → trade surplus
  What happens if a country is in a trade deficit? It sells assets and bonds to pay for the extra imports.

What happens if a country is in a trade surplus?

China Example

China is interesting because it is one of the largest exporters in the world due to cheap labor costs and mass manufacturing. America imports most of the manufactured goods from China.

• USA pays China in Yuan (via exchange)
• This should appreciate the currency
  But what China does is artificially depreciate its currency by buying USD.

Why does China do this?

If the Yuan appreciates:

• Exports become expensive
• Demand may decrease
  This is bad for an exporting country like China. That is also the reason why:
• The USA imports goods (it costs more to produce domestically) So China tries to maintain a balanced currency value to stay competitive.

Trade Deficit

• Countries that depend on exports prefer a weaker currency
• Countries that import more can tolerate a stronger currency

Economics is not just theory — it directly affects:

• Prices we pay
• Jobs
• Business growth
• Global power dynamics

And I’m just getting started