geb13 - CHAPTER 5 REVIEW QUESTION ANSWERS 1. International...

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CHAPTER 5 REVIEW QUESTION ANSWERS 1. International trading is quite complex, so why do nations routinely engage in this activity? Reason: economic gains from trade. More important, such gains must be shared by both sides; otherwise, there will be no willing exporters and importers. 2. Name and describe the two key components of a balance of trade. Exporting: selling abroad. Importing: buying from abroad. 3. Briefly summarize the three classical theories of international trade. Classical trade theories: the major theories typically studied consist of mercantilism, absolute advantage, and comparative advantage Theory of mercantilism: the belief that held that the wealth of the world (measured in gold and silver) was fixed and that a nation that exported more and imported less would enjoy the net inflows of gold and silver and thus become richer. Theory of absolute advantage: the economic advantage one nation enjoys that is absolutely superior to other nations. Theory of comparative advantage: the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations. 4. Compare and contrast the three modern theories of international trade. Product life cycle theory: an economic theory that accounts for changes in the patterns of trade over time. Strategic trade theory: a theory that suggests that strategic intervention by governments
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This note was uploaded on 01/25/2011 for the course GEB 3373 taught by Professor Crum during the Spring '10 term at University of Florida.

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geb13 - CHAPTER 5 REVIEW QUESTION ANSWERS 1. International...

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