test 2 Flashcards
free trade
absence of barriers to the free flow of g&s between countries
hecksher-ohlin theory
Trade reflects the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods.
raymond vernon
trade patterns reflect a product’s life cycle
new trade theory
paul krugmans
World market can only support a limited number of firms in some industries.
Trade will skew toward countries that have firms that are able to capture first-mover advantages.
national competitive advantage
Country factors explain a nation’s dominance in the production and export of certain products.
mercantilism
In a country’s best interest to maintain a trade surplus—to export more than it imports.
Gold and silver considered mainstays of national wealth.
Advocated government intervention to achieve a surplus in balance of trade.
zero sum game
one in which a gain by one country results in a loss by another.
- used in mercantilism
smiths views
countries differ in their ability to produce goods efficiently.
Trade is not a zero-sum game.
Countries should specialize in production of goods they have an absolute advantage in and then trade these goods for goods produced by other countries.
constant return to specialization
the units of resources required to produce a good are assumed to remain constant.
- Assumption of diminishing returns is more realistic since not all resources are the same quality and different goods use resources in different proportions.
leontief paradox
Since U.S. was relatively abundant in capital, it would export capital-intensive goods and import labor-intensive goods.
factor endowments
extent to which a country is endowed with resources such has land, labor and capital
