CHP 2 Flashcards
What is Mercantilism?
economic philosophy
nations wealth depends on accumulated treasure (usually gold)
to increase wealth, government policies should promote exports and discourage imports
Goods and services in ‘00 and ‘08?
7.9 T in ‘00. and Exceeding $19.5 T in ‘08
North America, Asia, and the EU proportions of world trade have increased. With the EU, new members account for some of the growth
How much of everything grown/made in the world is exported?
1/4
Who is part of the increase in world trade?
North America, Asia, And portions of EU>new members account for some of the growth
Who did developed nations trade primarily with after WW1?
other developed nations
Why is there a decline in developed nations trading with developing nations?
developing nations are trading with developing nations
Given regional trade agreements, what is changing over time?
Direction of trade among nations or regions
What are the advantages of focusing attention on a nation that is already a sizable purchaser of goods from the would-be exporters country?
- Business climate in the importing nation is relatively favorable
- The trading partner’s government may be applying pressure on importers to buy from countries that are good customers for that nation’s exports
Why are rankings of America’s trading partners rapidly changing?
Asia nations, like China, have become increasingly important and challenging trade partners for both exports and imports
International trade theory attempts to answer the question…?
“why do nations trade”
What is believed behind the reason of “Why do nations trade?”
Mercantilism> one of the initial economic doctrines (1550-1800) that accumulating wealth through trade is associated with political power
What impact did liberalism Adam Smith have?
attacked mercantilism and said that to trade in order to accumulate gold and other precious metals was foolish…By means of free, unregulated trade, a nation could acquire what it did not produce
What did Adam smith strongly believe?
Comparative Advantage: a nation should produce only those goods which it was most efficient. The surplus could be traded to obtain the products that could not be produced advantageously
What is the Theory of Comparative Advantage
a nation having an absolute disadvantage in production of two goods has a comparative advantage in the production of the good in which its absolute disadvantage is less
Theory of Absolute Advantage
Country “A” has absolute advantage when it can produce a larger amount of goods or services for the same amount of inputs as country “B” or when “A” can produce the same amount using fewer inputs than “B
Terms of Trade (ratio of international prices)
With specialization, now the total production of both goods is greater, but to consume both products, the two countries must trade some of their surplus.
Who created the Theory of Comparative advantage and what did he believe?
David Ricardo (Principles of Political Economy - 1817) showed that if a nation were less efficient in the production of two products, it could still gain from international trade if it were not equally less efficient in the production of both goods.
What was wrong with Smith and Ricardo’s theories?
considered labor as the only important factor in calculating production costs. Capital and land are other factors of production.
G. How Money Can Change the Direction of Trade.
- Traders must know a price in domestic currency to determine if is better to produce locally or import.
What is Exchange rate?
the price of one currency stated in terms of the other
How can countries regain a competitive position?
Through Currency Devaluation
Some countries have more abundant resources that others, which can result in?
different opportunity cost of producing these resources and bringing them to market
What does difference in resource endowments suggest?
developed countries would more likely trade with developing countries rather than other developed countries with similar factor endowments.
What affects a market demand in any country.
Consumers’ tastes, preferences, and their nation’s per capita income
b. Customers in countries with similar levels of per capita demand will…?
demand similar goods and services
National competitiveness results?
from a country’s ability to complete the functions necessary to drive a product/service to market and while increasing ROI: design, produce, distribute, and service
International trade occurs primarily because…?
of relative price differences among nations
Differences stem from differences in production costs which result from? (4)
- Differences in the endowment of factors of production
- Differences in the levels of technology that determine factor intensities used
- Differences in the efficiencies with which these factor intensities are utilized
- Foreign exchange rates.
