Study Guide for Exam 3

Study Guide for Exam 3 - Study Guide for Exam 3 1. 2. 3....

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Study Guide for Exam 3 Chapter 2 1. Mercantilism – what does the theory say, how is national welfare measured, what are the policy prescriptions of the theory? 2. Micro foundations – understand PPC, budget line, role of prices, indifference curves. 3. Absolute advantage (AA) - who invented it and why? a. What are the major differences between mercantilism and absolute advantage in terms of national objectives, policies recommended and understanding of international trade? b. Calculate which country has an AA in which product. Understand what relative prices will be before trade begins and in “international equilibrium”. Show imports, exports and gains from trade. c. Understand why specialization occurs. d. Understand what we mean by “terms of trade”. 4. Comparative advantage (CA). What are the main differences between AA and CA, why is CA a “better” theory? a. Identify which country has CA based on production data or shape of production possibility curve. Understand how to find CA with
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Study Guide for Exam 3 - Study Guide for Exam 3 1. 2. 3....

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