Trade Theories

mercantilism

• an economic system designed to enhance the wealth and power of nations.

• wealth was often measured by the accumulation of gold and silver

• exports > imports

absolute advantage

• ability of a country to produce a good or service more efficiently than another producer using the same amount of resources.

• specialization

comparative advantage

• who gives up less

• inherent ability to produce a product or service at a lower opportunity cost

heckscher-ohlin theory

• abundance of resources

• economic theory stating that countries export what

  they can most easily and abundantly produce.

product life cycle theory

• explains how products evolve and influence international trade and

  investment.

new trade theory

• economic theory that explains international trade

  based on economies of scale, network effects, and first-mover

  advantage.