MGCR 382 Midterm

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McGill, Desautels

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19 Terms

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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.

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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.

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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.

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Understanding Absolute Advantage

A country is said to have an absolute advantage if it can produce a good more efficiently, resulting in lower costs.

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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.

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Importance of Comparative Advantage

Allows for more efficient global resource allocation, leading to increased overall wealth and consumption.

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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.

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Factors of Production in Heckscher-Ohlin Theory

Abundant factors are land, labor, and capital, which influence a country's comparative advantage in trade.

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Leontief Paradox

Empirical findings that showed the U.S., despite being capital-abundant, imported goods that were more capital intensive than those it exported.

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Implications of the Leontief Paradox

Challenges the Heckscher-Ohlin model, suggesting that other factors influence trade patterns beyond capital intensity.

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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.

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Applications of Linder's Theory

Useful for understanding trade patterns in products where consumer preferences are critical.

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New Trade Theory

Developed by economists like Krugman, it emphasizes economies of scale and network effects leading to intraindustry trade among multinational corporations.

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Key Components of New Trade Theory

Includes concepts such as increasing returns to scale and product differentiation as drivers of international trade.

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Tariffs

Taxes imposed on imported or exported goods, which can be specific, ad valorem, or compound, affecting trade volumes.

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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.

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Non-Tariff Barriers (NTBs)

Trade restrictions other than tariffs, such as quotas and standards, that can limit imports and affect trade flows.

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Examples of Non-Tariff Barriers

Includes import quotas, licensing requirements, and technical standards.

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Exchange Rate

The price of one country’s currency in terms of another’s, important for understanding international trade and finance.