Define
Define free trade:
Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country
He promoted unrestrained free trade in the mid 1700s:
Adam Smith
What is the main theory of mercantilism?
It is in a country’s best interest to maintain a trade surplus - to export more than it imports
Define Absolute Advantage:
The ability of a party to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources
International trade allows a country to ________ products that can be produced more efficiently in other countries.
Import
Define Demand Conditions:
The nature and size of the domestic demand for an industry's products and services
He developed the idea of comparative advantage in the early 1800s:
David Recardo
What are Immobile Resources?
Resources do not always move freely from one economic activity to another
Define Comparative Advantage:
ability to produce goods and services at a lower opportunity cost than that of trade partners
According to Ricardo, free trade might _________ the efficiency of resource utilization, and free up resources for other uses
increase
Define New Trade Theory:
Theory that suggests that he world market can only support a limited number of firms in some industries (and trade will skew toward those countries that have firms that were able to capture first mover advantages)
These two men said that "trade reflects the interplay between the proportions in which the factors of production are available in different countries"
Hecksher and Ohlin
Define Economies of Scale:
The cost advantages that enterprises obtain due to their scale of operation (typically measured by amount of output produced), with cost per unit of output decreasing with increasing scale.
Define First Mover Advantage:
An advantage by being the first to market. Being first typically enables a company to establish strong brand recognition and customer loyalty before competitors enter the arena
Trade can increase the variety of goods available and decrease the average _____ of those goods
cost
Define zero-sum game:
In trade, a gain by one country results in a loss by another
He said that trade patterns reflect a product's life cycle:
Ray Vernon
Define Factor Endowments:
The amount of land, labor, capital, and entrepreneurship that a country possesses and can exploit for manufacturing
According to Smith, countries should specialize in the production of goods for which they have a(n)
absolute advantage
Krugman's theory says that the world market can support a(n) _________ number of firms in specific industries
limited
Define Product Life Cycle Theory:
As products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade
He said that the world market can only support a limited number of firms in some industries:
Paul Krugman
Define Diminishing Returns:
Used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested
The theory of __________ advantage suggests that potential world production is greater with unrestricted free trade than it is with restricted trade
comparative
Countries that are open to trade have higher _______ ______ than countries that close their economies to trade.
growth rates