International Trade and Money summary Questions and Answers 2023

1. Outline the main characteristics of the mercantilist view of international trade ; - -• Export as much as possible, import as little as possible • Mercantilism is a zero-sum game = not everyone can benefit o Someone's export = else's import • Japan and China often accused of neo-Mercantilism -2. Explain the principle of absolute advantage; - -The ability of a country/individual/ company A to produce certain product cheaper (at lower cost per unit) than country/individual/ company B -3. Describe, using a simple example, the principle of Comparative Advantage; - -The less efficient country (UK) should specialize in and export the good in which it is relatively less inefficient (where its absolute disadvantage is the least) The more efficient country (USA) should specialize in and export the good in which it is relatively more efficient (where its absolute advantage is the greatest) -4. Explain additional factors (additional to comparative advantage) that might support arguments for free trade; - -Companies will become more competitive Motivation to keep up with the competition -5. State the basic principle behind the factor proportions model of international trade - -every country has naturally given advantages • If a country has a lot of capital then its advantage will be in capital intensive goods = export a capital intensive good like trains • If a country is labor abundant, export labor intensive goods such as textiles -6. State briefly the Stolper-Samuelson and Factor Price Equalization theorems - -Stolper samuleson theorem shows that there is a positive relationship between changes in prices of output and the price of the factor used intensively in producing it -7. Outline the impact of country similarities and the economies of scale on patterns of international trade in today's world - -Similar countries like the U.S and Canada for example usually trade with each other more than they do with other countries. This is because they take advantage of economies of scale (industries produce more goods with a decreasing cost of production). This happens because similar countries have similar demands. This way they could trade at low cost, enjoy more diversity of goods, and specialize -8. Define the concepts of consumer surplus and producer surplus; - -Consumer surplus refers to the difference between the amount that buyers are willing to pay for a good and the actual amount they do pay