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Unformatted text preview: Chapter 5 International Trade Theory Free trade- the absence of government barriers to the free flow of goods and services between countries New trade theory- theory that sometimes countries specialize in the production and export of particular products not because of underlying differences, but because in certain industries the world market can support only a limited number of firms Mercantilism- an economic philosophy advocating that countries should simultaneously encourage exports and discourage imports Zero-sum game- economic gain by one country results in an economic loss by another country Absolute advantage- a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it Constant returns to specialization- the units of resources required to produce a good are assumed to remain constant no matter where one is on a country’s production possibly frontier Dynamic effects and economic growth of free trade: free trade might increase a country’s stock...
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This note was uploaded on 12/04/2011 for the course MKT 310 taught by Professor Tunga during the Summer '10 term at Michigan State University.
- Summer '10