9.13 - What is the tool to analyze production and...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
What is the tool to analyze production and consumption? -TRADE Why do we trade? -So each country will have an absolute advantage in producing one good. What do they trade? Export? Import? -Countries trade resources they have for things they don’t have What are the gains from trade? -both countries gain resources and goods they cannot naturally acquire -one country’s gain is another country’s loss -export gain of goods -import loss of precious metals -trade is based on the concept of absolute advantage -cost of production = cost of labor = price -Mercantilism in the 17 th and 18 th centuries -period of nation-building -gold and silver served as money -symbolized a nation’s wealth -nations encouraged exports and restricted imports as a method to improve inflow of gold and silver -Mercantilists assumed trade was a zero-sum game -that it could not be mutually beneficial to all parties Adam Smith (1776) -by assuming that each country could produce some commodities using less labor than its trading partners, he showed that all parties could benefit from
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 3

9.13 - What is the tool to analyze production and...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online