CH2-CLASSICAL COUNTRY-BASED THEORIES OF INTERNATIONAL TRADE

Question 1

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.

Answer 1

International trade theories

Question 2

What are the main points of the classical theories?

Answer 2

1. Important stimulator of economic growth
2. Promote greater international and domestic equality
3. Achieve development
4. 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.
5. 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.

Question 3

Mercantilism is also known as?

Answer 3

Bullionism

Question 4

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.

Answer 4

Capital goods

Question 5

These are found in nature, including land, trees and mines.

Answer 5

Natural resources

Question 6

The work performed by a person for a monetary consideration that forms part of the cost of production.

Answer 6

Labor

Question 7

Four factors of production

Answer 7

Land, Labor, Capital and Entrepreneurship

Question 8

Combines protectionism through tariffs and import barriers and domestic industry protection through subsidies and tax exemptions.

Answer 8

Neo-mercantilism

Question 9

A theory that restricts government intervention in the economy.

Answer 9

Laissez-faire

Question 10

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.

Answer 10

Specialization

Question 11

It occurs when increasing output leads to lower long-run average costs. It means that as firms increase in size, they become more efficient.

Answer 11

Economies of scale

Question 12

He was considered as a more profound influence on the development of mercantilism in France, where it was known as “Colbertism”.

Answer 12

Jean Baptist Colbert

Question 13

He posited that surplus gain is the fundamental originator of expanded reproduction, which is conditional on capital accumulation.

Answer 13

Sir William Petty

Question 14

He detailed a nine-point program of what he deemed effective national economy, which sums up the tenets of mercantilism comprehensively.

Answer 14

Philipp Wilheim von Hornick

Question 15

He wrote a pamphlet, A discourse of Trade in England where mercantilism was called commercial system or mercantile system.

Answer 15

Sir Thomas Mun

Question 16

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.

Answer 16

Antoine De Montchretien

Question 17

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.

Answer 17

Richard Cantillon

Question 18

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.

Answer 18

Physiocrats

Question 19

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.

Answer 19

Giovanni Botero and Antonio Serra

Question 20

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.

Answer 20

Absolute Advantage

Question 21

The father of economics

Answer 21

Adam Smith

Question 22

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.

Answer 22

Capitalism

Question 23

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.

Answer 23

Theory of absolute advantage

Question 24

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.

Answer 24

Free trade

Question 25

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.

Answer 25

Vent for surplus

Question 26

This means a producer can produce a good or service at a lower opportunity cost than others.

Answer 26

Comparative Advantage

Question 27

It refers to what is lost or missed out on when choosing one possibility over another.

Answer 27

Opportunity cost

Question 28

Who formulated comparative advantage?

Answer 28

David Ricardo

Question 29

Who was put in writing the theory of comparative advantage?

Answer 29

Adam Smith

Question 30

It is an economic system in which trade, industry, and capital are privately controlled and operated for profit.

Answer 30

Industrial capitalism

Question 31

It warranted complete specialisation in the specific commodity with a comparative advantage in terms of labor horses used per unit of output.

Answer 31

Comparative Advantage

Question 32

He developed monetarism, the theory of practice of controlling the supply of money as the chief method of stabilizing the economy.

Answer 32

David Ricardo

Question 33

It states that there is a point in production where the increased outputs no longer worth the additional input.

Answer 33

Law of Diminishing marginal return

Question 34

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.

Answer 34

Eli Heckscher and Bertil Ohlin