Questions and Answers
What does Adam Smith's Theory of Absolute Advantage suggest?
What is David Ricardo's Theory of Comparative Advantage?
A country should specialize in producing goods it can produce at a lower opportunity cost than others.
The Heckscher-Ohlin Theorem states that a country imports goods that are intensive in the factors it has in abundance.
False
Stolper-Samuelson Theorem indicates that an increase in the price of a good decreases the income of the factor used intensively in its production.
Signup and view all the answers
According to Porter's Diamond, what does a country's competitive advantage depend on?
Signup and view all the answers
What is the main idea of New Trade Theory?
Signup and view all the answers
International trade can benefit all ______ involved.
Signup and view all the answers
What is Adam Smith's theory of Absolute Advantage?
Signup and view all the answers
What does David Ricardo's Theory of Comparative Advantage suggest?
Signup and view all the answers
According to the Heckscher-Ohlin Theorem, what does a country export?
Signup and view all the answers
The Stolper-Samuelson Theorem states that an increase in the price of a good decreases the income of the factor used intensively in its production.
Signup and view all the answers
What affects a country's competitive advantage according to Porter's Diamond?
Signup and view all the answers
What do economies of scale and increasing returns to scale signify in New Trade Theory?
Signup and view all the answers
International trade can benefit all countries involved. True or _____?
Signup and view all the answers
Study Notes
Classical Theories
- Adam Smith's Theory of Absolute Advantage posits that countries should specialize in efficiently producing certain goods, thus maximizing trade benefits for all parties involved.
- David Ricardo's Theory of Comparative Advantage emphasizes that nations should focus on producing goods with lower opportunity costs, demonstrating that trade can still be advantageous even if one country holds an absolute advantage in all goods.
Neoclassical Theories
- The Heckscher-Ohlin Theorem states that countries will export goods that utilize their abundant factors of production, while importing goods that depend on the factors they have in scarcity.
- The Stolper-Samuelson Theorem suggests that an increase in a good's price raises the income of the factor of production that is heavily used for that good, while simultaneously decreasing the income of factors used for other goods.
Modern Theories
- Porter's Diamond highlights that a nation's competitive advantage arises from various domestic factors such as economy, education, government policies, and cultural influences, which collectively foster a conducive environment for specific industries.
- New Trade Theory introduces the concept of economies of scale, asserting that as production increases, the cost per unit decreases, prompting countries to engage in trade to leverage these economies and enhance efficiency.
Key Takeaways
- International trade offers mutual benefits for participating nations.
- Various international trade theories provide insights into the motivations and implications of trade.
- The applicability of these theories may vary based on specific circumstances and analytical factors.
Classical Theories
- Adam Smith's Theory of Absolute Advantage posits that countries should specialize in efficiently producing certain goods, thus maximizing trade benefits for all parties involved.
- David Ricardo's Theory of Comparative Advantage emphasizes that nations should focus on producing goods with lower opportunity costs, demonstrating that trade can still be advantageous even if one country holds an absolute advantage in all goods.
Neoclassical Theories
- The Heckscher-Ohlin Theorem states that countries will export goods that utilize their abundant factors of production, while importing goods that depend on the factors they have in scarcity.
- The Stolper-Samuelson Theorem suggests that an increase in a good's price raises the income of the factor of production that is heavily used for that good, while simultaneously decreasing the income of factors used for other goods.
Modern Theories
- Porter's Diamond highlights that a nation's competitive advantage arises from various domestic factors such as economy, education, government policies, and cultural influences, which collectively foster a conducive environment for specific industries.
- New Trade Theory introduces the concept of economies of scale, asserting that as production increases, the cost per unit decreases, prompting countries to engage in trade to leverage these economies and enhance efficiency.
Key Takeaways
- International trade offers mutual benefits for participating nations.
- Various international trade theories provide insights into the motivations and implications of trade.
- The applicability of these theories may vary based on specific circumstances and analytical factors.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge on the classical theories of international trade, including Adam Smith's theory of absolute advantage and David Ricardo's theory of comparative advantage. Explore how these theories explain the benefits of specialization and trade between countries.
