Week 6 Flashcards
What is free trade
When the government doesn’t use tariffs or quotas to restrict customers on what they can/can’t buy from another country and what they can produce/sell
What are the benefits of free trade?
This provides freedom a country to specialize in manufacturing and exporting products that can be produced most efficiently in that country
What is the history of trade theory and government involvement?
Promote exports and limit imports
What is Mercantilism: Mid-16th Century?
talks about how a nations wealth depends on growing (accumulated) treasure
What did the nation depend on currency of trade?
Silver and gold
What does Mercantilism theory say?
Maximize the export through subsidies and minimize imports through tariffs and quotas
What is the flaw of Mercantilism
There’s a zero sum game
Who made the theory of absolute advantage
Adam Smith
What did Adam Smith Argue
the absolute advantage means that countries should produce goods that is efficient for them and trade those goods for where it is not efficient
What did Adam smith’s assume among nations?
There is an absolute balance and that trade between countries is beneficial
Who is David Ricardo?
He created the Principles of Political Economy of 1817
Who came up with the Principles of Political Economy 1817?
David Ricardo
What is the Principles of Political Economy 1817?
- talks about how efficiency of resource utilization leads to more productivity and import even if they are efficient in production than the country that they are buying form
- This basically talks about how it is best to better use resources and that trade is a positive sum game
What are immobile resources?
resources that are not easy to move around
What are diminishing returns specialization?
more units of a good that the country produces, the greater the additional resources required to product an additional item, hence, difference goods use resources in different portions
What is free trade in open economies
Free trade may increase a country’s stock of resources and increase its efficiency of resource utilization
What is the Heckscher 1919 to Ohlin 1933 Theory?
This theory talks about how export goods use factor endowments that are locally abundant, patterns of trade are determined by the differences on factor endowments not productivity
What is Corollary?
Import goods made from locally scarce factors
What advantage did Heckscher - Ohlin focus on?
Relative advantage which is when a new product is more superior than an existing one