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Questions and Answers
What is one of the main points of the classical theories of international trade?
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?
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?
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?
What shift occurred in economic theories in the mid-twentieth century?
What was a strategy used by nation-states to control more trade and amass more riches?
What was a strategy used by nation-states to control more trade and amass more riches?
What was a goal of economic development according to the text?
What was a goal of economic development according to the text?
What was a consequence of mercantilism?
What was a consequence of mercantilism?
What was a strategy used by mercantilism to encourage production?
What was a strategy used by mercantilism to encourage production?
What is free trade characterized by?
What is free trade characterized by?
Who is considered to be the first economic theorist?
Who is considered to be the first economic theorist?
What is the focus of laissez-faire economics?
What is the focus of laissez-faire economics?
What is the result of specialization in production?
What is the result of specialization in production?
What did Physiocrats believe was the source of all wealth?
What did Physiocrats believe was the source of all wealth?
What did Giovanni Botero and Antonio Serra of Italy develop theories on?
What did Giovanni Botero and Antonio Serra of Italy develop theories on?
What is the goal of free trade?
What is the goal of free trade?
What did Adam Smith recommend?
What did Adam Smith recommend?
What is a result of international trade?
What is a result of international trade?
What is the definition of absolute advantage?
What is the definition of absolute advantage?
Who is recognized as the father of economics?
Who is recognized as the father of economics?
What is the definition of opportunity cost?
What is the definition of opportunity cost?
What is capitalism characterized by?
What is capitalism characterized by?
Who developed the theory of comparative advantage?
Who developed the theory of comparative advantage?
What did the physiocrats believe?
What did the physiocrats believe?
What is a characteristic of a country with comparative advantage?
What is a characteristic of a country with comparative advantage?
What was the primary focus of the school of thought known as Mercantilism?
What was the primary focus of the school of thought known as Mercantilism?
Who is attributed with the original concept of the price-specie-flow mechanism?
Who is attributed with the original concept of the price-specie-flow mechanism?
What was the title of Philipp Wilhelm von Hornick's 1684 publication?
What was the title of Philipp Wilhelm von Hornick's 1684 publication?
What was the result of industrialization according to Giovanni Botero and Antonio Serra?
What was the result of industrialization according to Giovanni Botero and Antonio Serra?
What was the main characteristic of the capitalist economy according to the reproduction model?
What was the main characteristic of the capitalist economy according to the reproduction model?
Who was most closely associated with the idea of Mercantilism in England?
Who was most closely associated with the idea of Mercantilism in England?
What was the result of the 'Commercial Revolution'?
What was the result of the 'Commercial Revolution'?
What was the primary means of adjusting price levels across borders according to the price-specie-flow mechanism?
What was the primary means of adjusting price levels across borders according to the price-specie-flow mechanism?
What is the main idea of the theory of absolute advantage?
What is the main idea of the theory of absolute advantage?
What is the relationship between the size of the market and the extent of specialization and division of labor?
What is the relationship between the size of the market and the extent of specialization and division of labor?
What is the role of free trade in promoting international division of labor?
What is the role of free trade in promoting international division of labor?
What is the main idea of the vent for surplus doctrine?
What is the main idea of the vent for surplus doctrine?
What is the significance of a country's natural resources in the production of goods?
What is the significance of a country's natural resources in the production of goods?
What is the outcome of international trade according to the theory of absolute advantage?
What is the outcome of international trade according to the theory of absolute advantage?
What is the relationship between the theory of absolute advantage and the theory of international trade?
What is the relationship between the theory of absolute advantage and the theory of international trade?
What is the role of specialization in the production of goods?
What is the role of specialization in the production of goods?
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.
