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McGill, Desautels
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Mercantilism
An early economic philosophy that measures a country's wealth by its holdings of gold and silver, focusing on a favorable balance of trade.
Key Features of Mercantilism
Prioritizes government regulation of the economy to augment state power, promotes exports over imports, and advocates for accumulation of precious metals.
Absolute Advantage
The ability of a country to produce more of a good than another country using the same amount of resources, emphasizing specialization and free trade.
Understanding Absolute Advantage
A country is said to have an absolute advantage if it can produce a good more efficiently, resulting in lower costs.
Comparative Advantage
The concept that countries benefit from trade by specializing based on lower opportunity costs, even if one has an absolute advantage in all goods.
Importance of Comparative Advantage
Allows for more efficient global resource allocation, leading to increased overall wealth and consumption.
Heckscher-Ohlin Theory
A theory suggesting that a country exports goods that intensively use its abundant factors of production and imports goods that use scarce factors.
Factors of Production in Heckscher-Ohlin Theory
Abundant factors are land, labor, and capital, which influence a country's comparative advantage in trade.
Leontief Paradox
Empirical findings that showed the U.S., despite being capital-abundant, imported goods that were more capital intensive than those it exported.
Implications of the Leontief Paradox
Challenges the Heckscher-Ohlin model, suggesting that other factors influence trade patterns beyond capital intensity.
Linder's Country Similarity Theory
A theory positing that trade in manufactured goods is driven by similarities in consumer preferences between countries at similar development levels.
Applications of Linder's Theory
Useful for understanding trade patterns in products where consumer preferences are critical.
New Trade Theory
Developed by economists like Krugman, it emphasizes economies of scale and network effects leading to intraindustry trade among multinational corporations.
Key Components of New Trade Theory
Includes concepts such as increasing returns to scale and product differentiation as drivers of international trade.
Tariffs
Taxes imposed on imported or exported goods, which can be specific, ad valorem, or compound, affecting trade volumes.
Types of Tariffs
Specific tariffs charge a fixed fee; ad valorem tariffs are based on the value of the product; compound tariffs use both methods.
Non-Tariff Barriers (NTBs)
Trade restrictions other than tariffs, such as quotas and standards, that can limit imports and affect trade flows.
Examples of Non-Tariff Barriers
Includes import quotas, licensing requirements, and technical standards.
Exchange Rate
The price of one country’s currency in terms of another’s, important for understanding international trade and finance.