CH2 MdTerm Flashcards
is the potential benefit that a person or
business gives up by choosing one option over another.
refers to the value of the next best alternative that is forgone when a decision is made to pursue one option over another. It represents the trade-off between different choices, highlighting what is sacrificed when choosing one option over others.
Opportunity Cost
developed by the economist, Adam Smith.
- It states that a country has an absolute advantage in producing
a good if it can produce it MORE EFFICIENTLY than another country. - The country can produce more of the good in the same amount of resources or the same amount of good even with fewer
resources.
The Theory of Absolute Advantage
developed by economist, David Ricardo.
It suggests that even if a country does not have an absolute advantage in producing any good, it can still benefit from trade by specializing in the production of goods for which it has the lowest opportunity cost relative to other countries.
The Theory of Comparative Advantage
is an economic theory and system that
emphasizes the importance of accumulating wealth, particularly gold and silver, through a positive balance of trade (exports greater than imports).
The goal of ———- is to ensure a country exports more than it imports, thereby accumulating wealth and strengthening national power.
——–believed that the prosperity of a nation was best
achieved by maximizing exports and minimizing imports to achieve national wealth.
Mercantilism
Mercantilists
Aim of Mercantilism
protectionist strategies (such as tariffs, subsidies,
and export promotion)
These policies aim to strengthen the national economy by controlling trade and accumulating wealth,
are various theories that analyze and explain the patterns and mechanisms of international trade, how countries exchange goods and services, and help countries in deciding what should be exported and what should be imported,
were initially country-based and were called classical theories.
main concerns was how “wealth on nations” can be increased.
International trade theories
is the concept of exchanging goods and services between two people or entities.
Trade
is the exchange goods and services between people or entities in two different countries.
International trade
In mercantilism, the government strengthens the private owners of the factors of production,
which are the following:
a) Labor
b) Natural resources
c) Capital goods (capital)
d) Entrepreneurship
refers to the work performed by a person for a monetary consideration. It is the monetary consideration that forms part of the cost of production.
Labor
are those found in nature, including land, trees, and mines.
Natural resources
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 refers to the money or funds used to purchase the goods used in the production process.
Capital goods (capital)
the entrepreneur is the one that combines the factors in the correct proportion and mobilizes them.
Entrepreneurship
is a system that allowed for liberalization which would pave the way for a freely
initiated trade and engage the maximum possible number of people bringing benefits to most parties and lead to further development of all participants in the long run.
Free trade
economics is a theory that restricts government intervention in the economy.
Smith demonstrated that the free market would translate into an all-encompassing economic development in a significantly wider sense than mercantilism.
Laissez-faire
was originally attributed to Scottish economist David Hume to illustrate how trade imbalances can self-correct and adjust under the gold
standard.
price-specie-flow mechanism
First economic theorist
he emphasized the need of importing raw
materials and exporting finished products to maintain a favorable balance of trade.
Richard Cantillon
is the cost incurred in producing an additional unit of a product.
Marginal cost
also called free market economy or free enterprise economy is an economic
system, where most means of production are privately owned and production is guided and income distributed largely through the operation of markets, which determine prices, products, and services rather than the government.
Capitalism
emerged as a result of the appearance of the physiocrats in France. The physiocrats were a group of economists who believed that the wealth of nations was derived solely from agriculture; that only agriculture yielded a surplus.
Modern capitalism
is perhaps the first well-developed theory of economics.It immediately preceded
the first modern school, classical economics. The physiocrats believed that the wealth of a nation lies not in its stocks of gold and silver, but rather in the size of its net product.
Physiocracy
a measure of the income generated in a production process, is the value of
outputs minus the value of inputs.
Net product,
is an economic system in which trade, industry, and capital are privately controlled and operated for profit. It saw the rapid development of the factory system of production characterized by much more rigid, complex, and intricate division of
labor that Smith was propounding.
Industrial capitalism
