Ch. 5 (International Trade Theory)

Ch. 5 (International Trade Theory) - International Trade...

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International Trade Theory Merchantilism Maximize export through subsidies Minimize imports through tariffs and quotas Absolute Advantage Produce goods where it is most efficient Adam Smith Trade for goods not efficient at making Comparative Advantage David Ricardo Country should still be willing to import from country with less efficient production on a product if resources can be used to produce something else to trade at a better ratio then the swap to produce the good Immobile Resource – Not all resources are easily redirected Diminishing returns – at some point it takes more for additional product unit created Free Trade – increase of country’s stock of resources (as labor and capital arrive from abroad), increases the efficiency of resource utilization Theory of Country Size Large countries import and export less o Varied Climates o Assortment of natural Resources Heckscher- Olin Theory Factor Endoments – resources of individual country
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Ch. 5 (International Trade Theory) - International Trade...

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