Chapter 6 - Chapter 6 International trade and the World...

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Chapter 6 International trade and the World Economy o Trade is voluntary exchange of goods /assets Voluntary because both parties benefit from exchange o International trade is trade between two countries’ firms o Developed trade theories to explain/predict forces that motivate trade Classical country based trade theories come from European states in 16 th century o Mercantilism economic philosophy measured by gold/silver. o Most like policy, yet severely hurt by it, higher taxes, higher domestic prices o Colonies could not compete, American revolution o Supporters now called neomercantilist or protectionalists, federation of labour Absolute advantage o Adam smith confuses wealth with treasure, robs individuals to trade freely and benefit o Makes goods it can’t afford to do with its resources o Absolute advantage theory, export what your good at Comparative advantage o David Ricardo, comparative advantage theory, states produce what your relatively more productive at producing than other countries o Brain surgeon vs. Mowing your lawn o Better off producing what your relatively good at Relative factor endowment o Swedish economics Eli hecksher and Bertil Ohlin theory of factor endowments known as Hecksher –Ohlin theory. o Two observations 1. Factor endowment vary among country (resources) 2. Goods differ according to the types of factors used to produce them
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o Country will have comparative advantage introducing products that use abundant
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This note was uploaded on 04/10/2009 for the course MANG MGCR 352 taught by Professor Zlou during the Spring '09 term at McGill.

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Chapter 6 - Chapter 6 International trade and the World...

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