Trading Theories - Economic

Question 1

what is the earliest trading theory? and what era is it from?

Answer 1

Mercantilism, 18th century

Question 2

what is the main idea behind mercantilism?

Answer 2

for a country to accumulate as much precious metals i.e. gold and silver.

Question 3

how does mercantilism suggest countries should gain these precious metals ?

Answer 3

by increasing exports and reducing imports.

Question 4

how would a country reduce exports and increase imports

Answer 4

increase exports by giving out subsidies and lowering domestic wage to make them more competitive.
and reducing imports by putting restrictions of them such as tariffs.

Question 5

policy measures of mercantilism?

Answer 5

1. restrict imports and subsidies exports
2. create colonies to source cheap resources
3. increase VA of exports and import low VA exports

Question 6

what is meant by “zero-sum” ?

Answer 6

this means one countries gain is another countries loss.

Question 7

what is neo-mercantilism?

Answer 7

a new take of mercantilism 19th century

Question 8

what was a reason for returning to mercantilism

Answer 8

times of economic hardship e.g. recession, this was in hope that it may create more jobs

Question 9

why was neo-mercantilism generally ineffective?

Answer 9

trading partners would retaliate with the same mercantilist trading policies.

Question 10

who criticised mercantilism? and what did the suggest?

Answer 10

Adam Smith (1776) and David Ricardo (1817) 
they suggested that trade can be a "win-win" game

Question 11

how did Ricardo and Smith suggest trade could be a win-win game?

Answer 11

• countries should export products that they can produce efficiently
• import goods which they cant produce as effectively
• this is specialisation = increases world trade.

Question 12

who developed the Heckscher and Ohlin model?

Answer 12

• Eli Heckscher (1919) and Bert Ohlin (1924) this model builds on the comparative and absolute advantage.

Question 13

what are factor endowments?

Answer 13

this refers to a countries land, capital and labour available to them (resources available) - which can be exploited for manufacturing

Question 14

what does the Heckscher model suggest?

Answer 14

• the countries should export things that they have in abundance
• and import things which are a scarce resource
  e. g. UK is highly skilled labour and therefore they have a booming financial industry.