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Trade Theory - Trade Theory Mercantilism National welfare =...

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Trade Theory
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Mercantilism National welfare = stock of gold Objective of trade is to get gold Exports good, imports are bad; trade surplus is good, trade deficit is bad Policy implications – promote exports, limit imports
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Mercantilism Actually true in its time Trade is a “zero sum” game Intuitive Logically inconsistent Objective only helps some
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Theories of Absolute and Comparative Advantage 1700’s – industrial revolution comes to England Landholders have political power – their objective:______________________ Industrialists have a different objective___maximize profit ____ Repeal “Corn Laws” but how? Series of laws that prevent the inflow of cheap grain “ weed ”
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Smith’s Theory of Absolute Advantage National welfare = stuff we can consume Trade helps us consume more Trade is largely self-equilibrating All counties can “benefit” – trade is a “positive-sum” game
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Some other key assumptions Labor theory of value – means:
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