Trade theories over time

Question 1

What is mercantilism?

Answer 1

Exports are good and imports are bad
Richness is to record a trade surplus

Criticism: hapiness comes from the consumption of goods

Question 2

What is the Absolute Advantage theory by Smith?

Answer 2

International tarde based on absolute advanatage

If A is more efficient in producing a good, then specialize and export this good

Support free tarde and laissez-faire

Criticism: what is absolute advantage in both goods?

Question 3

What is the Comparative Advantage theory by Ricardo?

Answer 3

Application of the concept of “opportunity cost” to international trade

Assumptions:
- technologies differs across countries
- labor theory of value

Compare the labor requirement ratio

Trade liberalization is better than trade protectionism

Question 4

What is the Heckscher-Ohlin theory?

Answer 4

Difference in factor abundance ratio (K/L) leads to international trade

A K abundant country exports K intensive goods and imports L intensive goods
=> Trade between rich and poor countru

Criticism: cannot explain trade between similar countries in terms of factor abundance ratios

Question 5

What is the New trade theory

Answer 5

Based on increasing return to scale
=> economies of scale

By specializing in a good, a country can reduce the average cost and raise profit