BUS 200 Chapter Notes - Chapter 5: Absolute Advantage, Mercantilism, Comparative Advantage
20 Jun 2017
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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. Protectionism: a country protects its domestic markets, opposite of free trade. Adam smith (1776) (absolute advantage): countries differ in their ability to produce goods efficiently: a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. According to smith: trade is not a zero-sum game: countries should specialize in the production of goods for which they have an absolute advantage and then trade these goods for the goods produced by other countries, mercantilism is wrong. Disagreed with adam smith and proposed comparative advantage. Heckscher and ohlin: comparative advantage arises from differences in national factor endowments (differences in land, labor, and capital)
