International Trade Theory and Trade Policy

Trade

The voluntary exchange of goods, services, assets, or money between one person or organization and another.

International Trade

Trade between residents of two different countries.

Interindustry Trade

The exchange of goods from one industry for goods from another industry (e.g., trading wood for wheat).

Intraindustry Trade

Trade between countries involving differentiated goods from within the same industry.

Mercantilism

A classical country-based trade theory aimed at increasing a country's wealth by growing holdings of gold and silver through exporting more and importing less.

Neomercantilism / Protectionism

Modern mercantilism in which government policies affect international trade to protect local firms and domestic workers from foreign competition using trade barriers.

Absolute Advantage

Adam Smith's theory that a country should specialize in and export goods it can produce more efficiently (producing higher quantities using fewer resources or lower cost) than other countries.

Comparative Advantage

David Ricardo's theory that a country should specialize in producing and exporting goods that it can produce at the lowest opportunity cost.

Opportunity Cost

What you give up to produce a good or service.

Factor Endowments

A country's available resources, such as labour, land, and capital.

Heckscher-Ohlin Theory

A classical country-based theory stating