CH2-CLASSICAL COUNTRY-BASED THEORIES OF INTERNATIONAL TRADE Flashcards
These are various theories that analyze and explain the patterns and mechanism of international trade, how countries exchange goods and services and help countries in deciding what should be exported and what should be imported, in what quantity, and with whom trade should be done globally.
International trade theories
What are the main points of the classical theories?
- Important stimulator of economic growth
- Promote greater international and domestic equality
- Achieve development
- In a world free trade, international prices and costs of productions determine how much a country should trade in order to maximize its national welfare.
- In order to promote growth and development, self reliance based on partial or complete isolation is asserted to be economically inferior to participation in a world of free unlimited trade.
Mercantilism is also known as?
Bullionism
These consist of those goods which are produced by the economic system and are used as inputs in the production of further goods and services.
Capital goods
These are found in nature, including land, trees and mines.
Natural resources
The work performed by a person for a monetary consideration that forms part of the cost of production.
Labor
Four factors of production
Land, Labor, Capital and Entrepreneurship
Combines protectionism through tariffs and import barriers and domestic industry protection through subsidies and tax exemptions.
Neo-mercantilism
A theory that restricts government intervention in the economy.
Laissez-faire
A method of production whereby an entity focuses on the production of a limited number of goods to gain a greater degree of efficiency that would lead to the development of economies of scale.
Specialization
It occurs when increasing output leads to lower long-run average costs. It means that as firms increase in size, they become more efficient.
Economies of scale
He was considered as a more profound influence on the development of mercantilism in France, where it was known as “Colbertism”.
Jean Baptist Colbert
He posited that surplus gain is the fundamental originator of expanded reproduction, which is conditional on capital accumulation.
Sir William Petty
He detailed a nine-point program of what he deemed effective national economy, which sums up the tenets of mercantilism comprehensively.
Philipp Wilheim von Hornick
He wrote a pamphlet, A discourse of Trade in England where mercantilism was called commercial system or mercantile system.
Sir Thomas Mun
He published a book titled A tract on Political Economy in which he laid great emphasis on development of agriculture and described it as the basis of all wealth.
Antoine De Montchretien
He is considered by many to be the first economic theorist. He emphasised the need of importing raw materials and exporting finished products to maintain a favorable balance of trade.
Richard Cantillon
An eighteenth century group of French economists who believed that agriculture was the source of all wealth and that agricultural products should be highly priced.
Physiocrats
They did not directly touch on mercantilism but developed theories using the city as a unit of analysis and finding development to be the result of industrialization.
Giovanni Botero and Antonio Serra
This means that a producer can produce a good or service in greater quantity for the same cost or the same quantity at a lower marginal cost.
Absolute Advantage
The father of economics
Adam Smith
It is called free market economy or free enterprise economy is an economic system, where most means of production is distributed through the operations of markets, which determine prices, products, and services.
Capitalism
This theory believes that countries should produce and export such products which they have an absolute advantage on and import those goods where they do not have absolute advantage.
Theory of absolute advantage
It promotes international division of labor through specialisation giving certain countries absolute advantage paving the way for international trade that will bring about economic development.
Free trade
This doctrine states that a nation can exchange its overproduction for other goods which are in demand in other countries, which will result in the fullest utilisation of the idle productive capacity.
Vent for surplus
This means a producer can produce a good or service at a lower opportunity cost than others.
Comparative Advantage
It refers to what is lost or missed out on when choosing one possibility over another.
Opportunity cost
Who formulated comparative advantage?
David Ricardo
Who was put in writing the theory of comparative advantage?
Adam Smith
It is an economic system in which trade, industry, and capital are privately controlled and operated for profit.
Industrial capitalism
It warranted complete specialisation in the specific commodity with a comparative advantage in terms of labor horses used per unit of output.
Comparative Advantage
He developed monetarism, the theory of practice of controlling the supply of money as the chief method of stabilizing the economy.
David Ricardo
It states that there is a point in production where the increased outputs no longer worth the additional input.
Law of Diminishing marginal return
He and his student studied how a country could gain comparative advantage by producing products that utilised factors that were in abundance in the country and propounded the Heckscher Ohlin theory or H-O theory also called the factor proportions theory.
Eli Heckscher and Bertil Ohlin
