W4P2 (lecture): Theories of International Trade Flashcards

1
Q

What is Mercantilism?

A

A theory and practice (1500-1800) that posits a fixed amount of wealth in the world, emphasizing that countries should export more than they import to amass treasure (favorable balance of trade).

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2
Q

Q: What is the main goal of Mercantilism?

A

A: To promote exports and restrict imports, solidifying national power through wealth accumulation.

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3
Q

Q: Who is associated with the concept of Absolute Advantage?

A

A: Adam Smith.

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4
Q

Q: What defines a country’s wealth according to Absolute Advantage?

A

A: A country’s wealth is based on its available goods and services rather than on gold.

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5
Q

Q: What does specialization in trade lead to?

A

A: Increased efficiency and benefits for all countries involved.

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6
Q

Q: What are the two sources of advantages in trade?

A

A: Natural advantages (e.g., climate, resources, transportation costs) and acquired advantages (e.g., design skill, process technology).

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7
Q

Q: Who introduced the concept of Comparative Advantage?

A

A: David Ricardo in 1817.

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8
Q

Q: How does Comparative Advantage differ from Absolute Advantage?

A

A: Comparative Advantage focuses on relative efficiency and labor costs, while Absolute Advantage is about a country’s overall capability to produce more.

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9
Q

Q: What is the Factor Proportions Theory?

A

A: The Heckscher-Ohlin theory that states countries specialize in producing goods that utilize their abundant and cheap factors of production.

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10
Q

Q: What does New Trade Theory address?

A

A: The reasons similar countries trade with each other, emphasizing the importance of growing returns to scale. Paul Krugman is a key figure in this theory.

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11
Q

Q: What is Strategic Trade Theory?

A

A: It examines how single firms can dominate the global market and how countries should respond, including the role of industrial policy.

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12
Q

Q: What are some examples of Strategic Trade Theory in practice?

A

A: Airbus and the CHIPS and Science Act.

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13
Q

Q: How can we summarize the evolution of trade theories?

A

A: Mercantilism/protectionism → Ricardo, comparative advantage, and free trade → Factor Proportions Theory → New and Strategic Trade Theories; industrial policy.

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