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Unformatted text preview: International Business- Test 2 International Trade Theory Mercantilism- Pillage the lands- do whatever it takes to increase your trade surplus How can I get as rich as I can possibly be- mercantilism- biggest trade surplus. Export as many goods as you can and import as least so people have to buy from you. You can charge any price you want (King and queen) Used high import barriers and export subsides, you can take extra money and export. Make no competition. Increadsed national wealth but decreased consumer satisfaction. Create a perfect monoloy from tarrifs and no one can sell to my city and jack up the price. This was up to the 1800s Mercantilism never went away- Neomercantilism- the more recent strategy of countries that use protectionist trade policies in an attempt to run favourable balances of trade and or accomplish particular social or political objectives. We have to believe in them and give the government our money. Japan, became a very rich country by neomercantilism, but many countries tried to shut it down. Absoulute Advantage- 1766. Adam Smith Free trade is better- countries should specialize production in something they are particulary good at. Comparative Advantage- IF one country is better at producing both goods, are you still better off trading?- Yes The world is better off when you are doing what you are best at. Hecksher- Ohlin Theory of factor endowments- contries will tend to specialize in goods that utilize their abudnat resources (Labor, minerals, etc) The Leontief Paradox- The US and other developed nations export many labor intensive goods, although they are capital intensive countries.goods, although they are capital intensive countries....
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- Fall '08