Week_3_Course_Materials

Week_3_Course_Materials - International Trade Theories...

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International Trade Theories
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Mercantilism Country’s wealth measured by holdings of treasure (gold) Favorable balance of trade – surplus - export more than import The trade difference was made up by a transfer of gold – Today, by currency or investments Neomercantilism – Run favorable balances of trade to achieve some social and political objective
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Theory of Absolute Advantage Adam Smith: Wealth of Nations ( 1776). Capability of one country to produce more of a product with the same amount of input than another country. Produce only goods where you are most efficient, trade for those where you are not efficient. Trade between countries is, therefore, beneficial. Assumes there is an absolute advantage balance among nations.
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Theory of Comparative Advantage David Ricardo: Principles of Political Economy ( 1817). Extends free trade argument Efficiency of resource utilization leads to more productivity. Should import even if country is more efficient in the product’s production than country from which it is buying.
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This note was uploaded on 02/24/2010 for the course ACCOUNTING 578844 taught by Professor Mctosh during the Spring '10 term at UCLA.

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Week_3_Course_Materials - International Trade Theories...

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