GS 1 Final Exam Study Guide (Collective) - Final Exam Terms...

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Final Exam Terms 1. Free Trade Doctrine Definition : originating from Manchester around the 19th century, the free trade doctrine is a policy followed by some international markets in which countries’ governments do not restrict imports from and exports to other countries. Different cognitive claims existing around the doctrine (absolute advantage, comparative advantage…). Laissez-faire attitude toward commodity exchange. o Discourse : Unrestricted commodity trade between sovereign nations is mutually beneficial and would increase the welfare of all participants. Unrestricted commodity exchange between places is the best way to advance their mutual prosperity. o Relation to globalization? -not practiced under state-led globalization but with =neoliberal (Big G globalization), led to emergence of World Trade Organization in 1994- to encourage the world to perform free trade and for countries to open borders. Enables globalization to operate in a way so that everyone benefits from it (increased welfare for all participants), there are more goods and services circulating the globe and being traded, and there is a greater international output when countries specialize. The Myth of “larger growth” = “larger benefits for all” o Relevant examples from lecture/readings : The Corn Law Example : When Manchester imposed restrictions and tariffs on imported grain. Farmers and workers became upset and created anti-corn law groups. Later repealing the laws pushing England and many other countries to adopt free trade. Adam Smith : free trade with absolute advantage in terms of competition, indicating absolute specialization. Eg: some places (China) are cheaper to do everything compared to other places (1776) David Ricardo : free trade with comparative advantage, meaning more cost-efficient to do something. (1817) Hecksher/Ohlin (1950s): Modern trade theory (based on maximum use of available resources within a country, whether they be physical or intangible) eg: US → capital product China → labor product Krugman/Helpman (1990s): New trade theory (based on economies of scale) - essentially that countries can produce similar goods, regardless of comparative advantage as long as economies of scale are allowing for mutual benefit. For example, the US and China often produce similar goods and trade with each other. This seems futile, but economies of scale occur as production increases, so profit can be made (economies of scale - when production increases, per unit cost of production falls because of productivity) 2. The Global Triad o Definition: refers to the three parts of the globe (Europe, North America, and East Asia -- primarily Japan) that tend to have the most trade flow, transnational trade and investment opportunities. Most political and economic integration between these countries. o US/Canada, Western Europe, Japan/New Zealand/Australia
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Exploring Microeconomics
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Chapter 1 / Exercise 4
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Dominated trade between 1960 - 2000s o Relation to globalization: reproduces geographical inequalities such that most of the global trading occurs between these three regions.

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