Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
24 Cards in this Set
- Front
- Back
|
Mercantalism What are pillars/ assumptions? |
A countries wealth is determined by its holding by precious metals Export more, import less Trade is a zero sum game. |
|
|
Mercantalism How do you increase your trade balance? |
Prohibiting exports of precious metals Give exclusive trade rights to domestic companies. Subsidies exports placing quotas and tariffs on imports |
|
|
Mercantalism who are the critics/ what do they argue? |
Hume - Price-specie-flow mechanism
Cannot export more than import indefinitely. (domestic increase of price and wage; exports more expensive) Adam Smith Trade is a positive sum game(win win) Countries should specialize in production of goods of absolute advantage. |
|
|
Ricardian Model What are the pillars/Assumptions? |
Two commodities Labour only factor of production; each country has fixed endowment of resources (Labour)More labour; Higher price. Technology is the same everywhere. Perfect competition No government obstacles. |
|
|
Ricardian Model Absolute vs Comparative |
Absolute = higher production, both goods cheaper. Comparative = Reduces opportunity costs from producing goods. Beneficial for both countries. Determined by differences in technology of production. |
|
|
Hechscher-Ohlin Model What are the pillars/assumptions? |
Same as Ricardian, Labour and Capital affect. Levels of capital and labour are fixed. Tech identical. One country capital abudant; one country labour abudant e.g. U.S and India. |
|
|
Hechscher Ohlin Model Theorem? |
Comparative advantage in terms of capital AND labour. Computers = capital abudant Cloths = Labour abudant |
|
|
Hechscher Ohlin Model Factor price equalisation theorem? |
Loss of labour from shift of production; Price of capital and labour will increase/decrease depending on demand Wages will reflect the increased type of production. (E.g. US higher skilled wages increase, lower skilled decrease. Visa versa for india) |
|
|
Hechscher Ohlin Model Stolper Samuelson Theorem |
Owners of abudant factor will gain in real terms, owners of scarce factor will lose in real terms. e.g. clothes industry in US will suffer. |
|
|
Imitation Lag Hypothesis |
Defined as the period of time that elapses between the products introduction in country 1 and the appearance by firms in country 2 Demand lag = The lag between the creation of product in country 1 to the demand of the product in country 2. |
|
|
Linder Theory |
Tastes of consumers depend on income levels. Goods produced in the country reflect the capital income level of that country. Trade is more intense between countries with similar GDP. |
|
|
Leontief Paradox |
H-O was wrong. Data has found the contradicting results. |
|
|
Intra-Industry Trade/Inter-Industry trade |
Exporting/Importing items of same product e.g. exporting and importing cars Exporting items in different product categories e.g. Exporting cars and importing chutney |
|
|
Reasons for Intra-Industry trade? |
Product variation Consumer taste/demand Specialization of industry lowers costs Transport costs in large countries. Different income distributions in countries |
|
|
Gravity model |
equation to predict volume of trade between any two countries. TRADE = (GDP1 X GDP2) Divided by distanced squared. Criticism; free trade area, similar currency (euro). |
|
|
Protectionism Reasons for protectionism? |
Government revenue National defense improved trade balance (Stronger exports) Reduce unemployment Help grow infant industry (building laptops in india) Responding to other protectionism |
|
|
Protectionism Protect vs Attack |
Protect = Quotas, Tarriffs, Health and Safety Attack = Dumping, Low wages, trade agreements |
|
|
Protectionism Types of Dumping |
Persistent good consistently sold at lower price Predatory Knock out other competitors/force out of business |
|
|
Economic Integration Free trade areas |
Free trade = All tarrifs removed Customs Union = tarriffs removed between members, common external tarrifs. Common market = Customs union + free movement of labour and capital. |
|
|
Economic Integration Static vs Dynamic |
Static = Trade creation and trade diversion Dynamic = Increased competition(reduce monopoly) increase economies of scale, demand increase, increased investment, increased mobility. |
|
|
Trade Policy Instruments and impacts? |
Tarriffs; specific = fixed on each individual unit E.G. $0.1 on each cadbury's bar Ad valorem = fixed percentage on each individual unit e.g. 10% on each cadbury bar. Quotas; limits quantity of good imported rather than price. |
|
|
Exchange rates Fixed vs Floating |
Fixed (self set rates)= short term stability, efficient fiscal policy Floating = Efficient monetary policy, less painful economic shocks |
|
|
Fair Trade Fair trade aspects |
Cannot be considered a long term strategy; not sustainable. Operates within a free market system Large proportion of premium goes towards bureaucracy (goes to offices, not people in need) Focuses on middle income countries, rather than low. Removes trade barriers against primary products in developing countries |
|
|
Transatlantic Trade Agreement What is TTIP |
Proposed trade agreement between U.S and European union. U.S trades more with EU than China. |
