Early International Trade Theory Flashcards
need to maintain excess of exports to imports
Favorable balance of Trade/Positive Trade Balance
price-specie flow mechanism assumption: demand of traded goods is price elastic
high price; low total expenditure for traded goods
simple comparison of labor productivities
absolute advantage
no comparative advantage if
both countries have equal opportunity cost
this suggests that a country will specialize in the production of a good which it can produce cheaply in terms of the other good (OC), compared to the rest of the world.
comparative advantage
price-specie flow
david hume
3 components of economic system
- manufacturing
- sector, rural sector
- foreign colonies
it views that national wealth was reflected in a country’s holdings of
precious metals
price-specie flow mechanism assumption: perfect competition in both product and factor markets is assumed to establish link between
price behavior and wage behavior
challenge to mercantilism
- David Hume
- Adam Smith
price-specie flow mechanism assumption: gold standard exists
currencies are pegged to gold
this is a general ability of country to produce a good using fewer resources
absolute advantage
economic activity can be viewed as
zero sum grade
governments controlled the use and exchange of precious metals
bullionism
smith’s argument: nation’s wealth was reflected in its _______ not in its holdding of precious metals. govt of laissez-faire would be best to increase wealth.
productive capacity
mercantilism in Europe during the period from
1500 to 1750
mercantilism is also referred to as
political economy of state building
quantity theory of money
MV = PY
commodities were valued relatively in terms of their labor content
Labor Theory of Value
