Openness of the goods market

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In macroeconomics , the product market is the sum of all markets on which goods and services are traded. It comprises the aggregated supply and the aggregated demand for all goods produced in an economy . Thus, from a macroeconomic point of view, the goods market includes both consumption and investment.

In microeconomics , the goods market is referred to as a temporally and spatially limited market for a single product or good. So it is seen here as a purely individual market.

Open goods markets enable the customers (consumers) of goods and services to choose between domestic and foreign goods. Conversely, the providers (companies) of goods and services have the opportunity to sell the goods at home and abroad. As before, there are currently tariffs, import and export restrictions, and other tariff and non-tariff trade barriers .

Trade and services balance

Exports and imports of goods are recorded in the trade balance , exports and imports of services (e.g. labor services, capital services, tourism) are recorded in the services balance.

Empiricism

The figure shows the development of German goods imports and exports as a share of German GDP over the past 45 years. It illustrates a significant increase in both exports and imports over time. For the past forty years the German trade balance has generally been in surplus. At the beginning of the 1990s, the trade surplus decreased due to German reunification (loss of competitiveness). Until 2005 the surplus of the trade balance increased significantly (integration of the world economy and the EU). From this export surplus, conclusions can be drawn about the competitiveness of German industry. The external balance corresponds to the balance of trade and services. The foreign trade quota corresponds to the mean of the export quota and the import quota . With the help of the foreign trade quota, the range of trade with the rest of the world can be shown. While this was still an average of 15% in the 1960s, it has more than doubled by 2005. This shows that Germany is now trading twice as much with the rest of the world as it was 45 years ago.

The services balance, on the other hand, shows a deficit. The reason for this is to be found in tourism, since the service balance is dominated by travel. The reason is simple, more Germans go on holiday abroad than the other way around. The deficit in the services account exceeded i. d. Usually, however, not the surplus of the trade balance, so that overall a positive external contribution was realized.

The table shows the foreign trade quotas for some OECD countries . It is empirically striking that the USA and Japan have a relatively low foreign trade quota. The European countries, on the other hand, show a much higher percentage. From this, however, it cannot be concluded that the American / Japanese economy is not very open, since the foreign trade quota is not a good measure of the openness of markets. A better measure of the openness of an economy is the share of tradable goods in total production. The USA / Japan's low foreign trade quota is due to the size of the country. The most important determining factors for the differences in foreign trade quotas are the geographic location and the size of the country.

Choice of domestic and foreign goods

Relative prices as determinants of supply and demand for domestic and foreign goods.

The demand for domestic and foreign goods depends on the relative prices between domestic and foreign goods:

  • In the case of homogeneous goods , consumers will choose the good with the lower price.
  • In the case of inhomogeneous goods, differences in the feasibility of customer benefits must also be taken into account. The economic agents choose i. A. the good with the lowest price-performance ratio. Specific preferences can also play an important role, e.g. B. Preferences for specific performance features, countries of origin, brands etc.

In a similar way, the decision about an offer of goods on domestic and foreign markets also depends on the relative prices:

  • In the case of homogeneous goods, firms will sell at a higher price.
  • In the case of inhomogeneous goods at the highest price-performance ratio.

From the nominal to the real exchange rate

Nominal exchange rate

The nominal exchange rate indicates the exchange ratio between foreign and inl. Currency.

Nominal exchange rates between two currencies can be expressed in two different ways:

  • Quantity quotation
It indicates how many foreign monetary units you have to pay for one unit of domestic currency. It describes the price for a unit of domestic currency, calculated in foreign currency.
  • Price quotation
This indicates how many domestic monetary units a foreign monetary unit is worth.

Both types of quotation are used internationally, but volume quotation is more common.

The exchange rate between the euro and most foreign currencies changes daily. If it changes so that less domestic currency is required to acquire a unit of foreign currency than before, then one speaks of an appreciation of the domestic currency. If the exchange rate changes in such a way that more units of the domestic currency are required to acquire a unit of foreign currency than before, then one speaks of a devaluation of the domestic currency.

Real and nominal exchange rate between Dtl. and the USA.

The figure shows the development of the nominal and real exchange rate between the euro and the dollar since 1975. It shows how the relative price of the two currencies (dollar compared to the euro) has moved. Two points stand out here. On the one hand the rising trend of the exchange rate and on the other hand the strong fluctuations during the course.

Real exchange rate

The real exchange rate indicates the relative prices between domestic and foreign goods, expressed in domestic or foreign currency.

A real exchange rate is to be developed that shows the relative price of all goods produced in Germany in units of all goods produced in the USA. For this purpose, a dollar price index must be used for all goods produced in the USA and a euro price index for all goods produced in Germany. This is where the GDP deflator comes into play. It is a price index for the end products and services produced in an economy.

The real exchange rate also changes over time. If the price of domestic goods increases relative to the price of foreign goods, one speaks of a real appreciation. If domestic goods become cheaper relative to foreign goods, one speaks of a real devaluation.

Calculation of the real exchange rate

[E] nominal exchange rate dollar to euro
[P] GDP deflator for Germany
[P *] GDP deflator for USA

From the bilateral to the multilateral exchange rate

real exchange rate between two countries
real exchange rate between a country and its trading partners, calculated as the weighted average of bilateral exchange rates.

Since Germany has trade relations with many countries, real multilateral exchange rates must be determined. For this purpose, the mean of the bilateral real exchange rates weighted with the trade quotas must be calculated.

In order to determine multilateral real export exchange rates, the bilateral real exchange rates to the various countries are weighted with the shares of the exports to the various countries in the total exports. The same procedure is used when calculating the real import exchange rates. The real multilateral exchange rates are then calculated as the mean of the real multilateral exchange rates of exports and imports.

Law of the single price and purchasing power parity

Is the theory of exchange rate determinations, assuming that one unit of any currency can buy the same amount of goods in any country.

Entire bundles of goods are traded between Germany and the USA. If the law of the uniform price applies to all goods, the price of a German shopping cart, measured in dollars, should have the same price as an American shopping cart. The high fluctuations in the real exchange rate make it clear that purchasing power parity is usually not met in the short term. The reason for this are the existing trade barriers , the fact that not all goods are tradable and of course that many prices are short-term rigid.

Individual evidence

  1. ↑ http://www.vernunft-schweiz.ch/glossar/51/G%FCtermarkt+.html
  2. ↑ http://www.vernunft-schweiz.ch/glossar/51/G%FCtermarkt+.html
  3. ^ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006 page 512
  4. ↑ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 513
  5. ↑ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 514
  6. ↑ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 514
  7. ↑ Blanchard, O., Illing G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 514/515
  8. ↑ Blanchard, O., Illing G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 517
  9. ↑ Blanchard, O., Illing G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 517
  10. ↑ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 517
  11. ↑ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 517
  12. ^ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 519
  13. ^ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 519
  14. ↑ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 520
  15. ↑ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 520
  16. ↑ Blanchard, O., Illing, G .: Macroeconomics, 4th updated edition, Pearson Studium, Munich 2006, page 520

literature

  • Blanchard, Olivier / Illing, Gerhard: Macroeconomics. 4th updated edition, Person Studium, Munich 2006, ISBN 3-8273-7209-7
  • Zenthöfer, Andreas: Fundamentals of Macroeconomics . Richter, Kiel 2006, ISBN 3-935150-51-2
  • Mankiw: Fundamentals of Economics . Schäffer Poeschel, Ulm 2001 ISBN 3-7910-1853-1
  • Samuelson PA / Nordhaus WD: Economics . Bobingen 2005, ISBN 3-636-03033-7

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