poli 12- final terms-1

poli 12- final terms-1 - 1. Law of Comparative Advantage...

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

View Full Document Right Arrow Icon
1. Law of Comparative Advantage Def: is the conceptual core of the economic analysis of trade. It is more specifically the application of specialization theory to international trade. Countries should focus on exporting the product that they can do so the best. The Law shows how nations gain most by exporting what they produce most efficiently in order to pay for imports of the best products of other countries. Sig: This theory bases off of free trade and low trade restrictions. As one’s intuition should tell us, lowering trade barriers would be advantageous to every nation, as it can export and receive products of the best quality, there are still so many barriers reflecting conflicting interests. This law is important b/c it represents an ideal situation for all nations, but depends upon free trade and a large market , without which it fails to be successful. Ex: In Costa Rica it has been in their comparative advantage to focus primarily on the exports of cocoa and coffee . While they can be sufficient in other areas, the fact that coffee is wanted everywhere, and their coffee is of high quality, they receive more for focusing on this one industry of exports, and receive more money for purchasing imports than they would if they pursued another product. 2. Heckscher-Ohlin theory of International Trade Def: this theory tries to explain the comparative advantage with respect to differing factors of production within nations . It argues that a country will export goods that make intensive use of the resources that the country has in abundance , while imports goods that make an intense use of the resource in which the country is scare. Sig: This theory is important b/c it distinguishes which portions of the world should invest in certain industries. Obviously countries with lots of land and unskilled labor should focus on their abundant factors and thus export products like agriculture, raw materials, or other labor intensive manufactures. On the flip side nations rich in capital and low in land should focus on ‘educated’ human capital manufacturing. Neither of the nations will be able to produce the others products to the same sufficiency, and so this theory is so important by determining what nations should produce for the highest benefits. Ex: Japan vs. China - A nation like Japan is low in land and high in capital and skilled labor. As such it is to their benefit that they export these technologies, b/c of its ability to do so with better proficiency than most other nations, and in effect receive more for their exports. On the flip side a nation such as China which is so abundant in labor that it is very beneficial to produce unskilled labor products, like clothes or toys. China will be able to produce mass amounts of these products with good proficiency and therefore can use this export to import these technologies which would be more of a strain to produce. 3. Stolper-Samuelson theorem
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 / 11

poli 12- final terms-1 - 1. Law of Comparative Advantage...

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