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Classical Theories of International Trade
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Classical Theories of International Trade

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Questions and Answers

What is one of the main points of the classical theories of international trade?

  • Tariffs and quotas to curtail imports
  • Increasing exports and trade (correct)
  • Complete isolation to promote economic development
  • Encouraging production within national territories

    • What was a key goal of mercantilism?

  • To amass more gold and wealth for their countries (correct)
  • To discourage international trade
  • To encourage production within national territories
  • To promote international equality

    • In a world of free trade, what determines how much a country should trade?

  • Government policies and regulations
  • International prices and costs of production (correct)
  • National welfare and economic growth
  • Tariffs and quotas

    • What shift occurred in economic theories in the mid-twentieth century?

    <p>From country-based to firm-based theories</p> Signup and view all the answers

    What was a strategy used by nation-states to control more trade and amass more riches?

    <p>Expanding their colonies around the world</p> Signup and view all the answers

    What was a goal of economic development according to the text?

    <p>To achieve economic growth through trade</p> Signup and view all the answers

    What was a consequence of mercantilism?

    <p>Amassment of more gold and wealth for countries</p> Signup and view all the answers

    What was a strategy used by mercantilism to encourage production?

    <p>All of the above</p> Signup and view all the answers

    What is free trade characterized by?

    <p>Absence of government regulatory intervention</p> Signup and view all the answers

    Who is considered to be the first economic theorist?

    <p>Richard Cantillon</p> Signup and view all the answers

    What is the focus of laissez-faire economics?

    <p>Restricting government intervention in the economy</p> Signup and view all the answers

    What is the result of specialization in production?

    <p>Focus on production of a limited number of goods</p> Signup and view all the answers

    What did Physiocrats believe was the source of all wealth?

    <p>Agriculture</p> Signup and view all the answers

    What did Giovanni Botero and Antonio Serra of Italy develop theories on?

    <p>The city as a unit of analysis</p> Signup and view all the answers

    What is the goal of free trade?

    <p>To engage the maximum possible number of people and lead to further development</p> Signup and view all the answers

    What did Adam Smith recommend?

    <p>Leaving economic decisions to the free play of self-regulating market forces</p> Signup and view all the answers

    What is a result of international trade?

    <p>A transfer of knowledge and technology between nations</p> Signup and view all the answers

    What is the definition of absolute advantage?

    <p>A producer can produce a good or service in greater quantity for the same cost or the same quantity at a lower marginal cost</p> Signup and view all the answers

    Who is recognized as the father of economics?

    <p>Adam Smith</p> Signup and view all the answers

    What is the definition of opportunity cost?

    <p>The cost of choosing one possibility over another</p> Signup and view all the answers

    What is capitalism characterized by?

    <p>Most means of production are privately owned</p> Signup and view all the answers

    Who developed the theory of comparative advantage?

    <p>Ricardo</p> Signup and view all the answers

    What did the physiocrats believe?

    <p>The wealth of nations is derived solely from agriculture</p> Signup and view all the answers

    What is a characteristic of a country with comparative advantage?

    <p>It can produce a good or service at a lower opportunity cost than other countries</p> Signup and view all the answers

    What was the primary focus of the school of thought known as Mercantilism?

    <p>International trade and balance of trade</p> Signup and view all the answers

    Who is attributed with the original concept of the price-specie-flow mechanism?

    <p>David Hume</p> Signup and view all the answers

    What was the title of Philipp Wilhelm von Hornick's 1684 publication?

    <p>Austria Over All</p> Signup and view all the answers

    What was the result of industrialization according to Giovanni Botero and Antonio Serra?

    <p>Development of national economies</p> Signup and view all the answers

    What was the main characteristic of the capitalist economy according to the reproduction model?

    <p>Smooth reproduction of itself</p> Signup and view all the answers

    Who was most closely associated with the idea of Mercantilism in England?

    <p>Sir Thomas Mun</p> Signup and view all the answers

    What was the result of the 'Commercial Revolution'?

    <p>Transition from local economies to national economies</p> Signup and view all the answers

    What was the primary means of adjusting price levels across borders according to the price-specie-flow mechanism?

    <p>Inflow or outflow of gold or specie</p> Signup and view all the answers

    What is the main idea of the theory of absolute advantage?

    <p>Countries should produce and export goods where they have an absolute advantage</p> Signup and view all the answers

    What is the relationship between the size of the market and the extent of specialization and division of labor?

    <p>A larger market leads to a greater degree of specialization and division of labor</p> Signup and view all the answers

    What is the role of free trade in promoting international division of labor?

    <p>Free trade promotes international division of labor through specialization</p> Signup and view all the answers

    What is the main idea of the vent for surplus doctrine?

    <p>A nation can exchange its overproduction for other goods in demand in other countries</p> Signup and view all the answers

    What is the significance of a country's natural resources in the production of goods?

    <p>A country's natural resources are one of the factors that determine the production of goods</p> Signup and view all the answers

    What is the outcome of international trade according to the theory of absolute advantage?

    <p>International trade brings about economic development</p> Signup and view all the answers

    What is the relationship between the theory of absolute advantage and the theory of international trade?

    <p>The theory of absolute advantage and the theory of international trade are closely interwoven and interlinked</p> Signup and view all the answers

    What is the role of specialization in the production of goods?

    <p>Specialization ensures effective competition across countries</p> Signup and view all the answers

    Study Notes

    Classical Theories of International Trade

    • Theories of international trade include mercantilism, which aims to encourage production within national territories through protectionist policies like tariffs, quotas, and monopolistic privileges.

    Mercantilism

    • Mercantilist policies were used to increase gold and wealth for nation-states by increasing exports and trade.
    • The period also saw the rise of new nation-states that expanded their wealth by using their colonies around the world to control more trade and amass riches.

    Trade and Economic Growth

    • Trade is an important stimulator of economic growth and helps countries achieve development.
    • In a world of free trade, international prices and costs of production determine how much a country should trade to maximize its national welfare.
    • Participation in a world of free unlimited trade is economically better than complete isolation to promote economic development.

    Shifting Theories

    • In the mid-twentieth century, economists shifted from country-based to firm-based or company-based theories, known as modern theories.

    Price-Specie-Flow Mechanism

    • The price-specie-flow mechanism, attributed to Scottish economist David Hume, illustrates how trade imbalances can self-correct and adjust under the gold standard.

    Historical Contributors

    • Philipp Wilhelm von Hornick detailed a nine-point program for mercantilism in his book "Austria Over All, If She Only Will" in 1684.
    • Sir Thomas Mun was closely associated with the idea of mercantilism in England, where it was called the commercial system or mercantile system.
    • Giovanni Botero and Antonio Serra of Italy developed theories using the city as a unit of analysis and finding development to be the result of industrialization.
    • Richard Cantillon is considered by many to be the first economic theorist, emphasizing the need to import raw materials and export finished products to maintain a favorable balance of trade.
    • Physiocrats, a group of French economists, believed that agriculture was the source of all wealth and that agricultural products should be highly priced.

    Laissez-Faire Economics

    • Laissez-faire economics is a theory that restricts government intervention in the economy, allowing for liberalization and a freely initiated trade.

    Specialization and Comparative Advantage

    • Specialization is a method of production that allows an entity to focus on the production of a limited number of goods to gain a greater economic advantage.
    • Absolute advantage means that a producer can produce a good or service at a lower marginal cost than others.
    • Comparative advantage means that a producer can produce a good or service at a lower opportunity cost than others.
    • The theory of comparative advantage, attributed to Ricardo, states that a country has comparative advantage when it produces a good or service for a lower opportunity cost than other countries.

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    Description

    This quiz covers the key points of classical theories of international trade, including the role of trade in economic growth and equality, and the rise of new nation-states.

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