GMS 724 Lecture Notes - Lecture 5: Mercantilism, Absolute Advantage, Factors Of Production

• School: Ryerson University
• Department: Global Management Studies
• Course: GMS 724
• Professor: Howard Lin

Document Summary

Chapter 5 international trade and factor mobility theory. What the (cid:373)ajo(cid:396) t(cid:396)ade theo(cid:396)ies do a(cid:374)d do(cid:374)"t dis(cid:272)uss. Free trade theories (1: absolute advantage, suggests specialization through free trade because consumers will be better off buying foreign-made products priced more cheaply than domestic ones, specialization increases efficiency for 3 reasons. Labor more skilled by repeating: time saving without switching tasks. Long production runs promote more effective methods: natural versus acquired advantage. I(cid:374) 1(cid:1011)(cid:1011)(cid:1010), ada(cid:373) s(cid:373)ith (cid:395)uestio(cid:374)ed the (cid:373)e(cid:396)(cid:272)a(cid:374)tilists" assu(cid:373)ptio(cid:374)s (cid:271)y stati(cid:374)g that the (cid:396)eal wealth of a country consists of the goods and services available to its citizens rather tha(cid:374) its holdi(cid:374)gs of gold. Smith reasoned that if trade were unrestricted, each country would specialize in those products that gave it a competitive advantage. Although smith believed the marketplace would make the determination, he thought that a (cid:272)ou(cid:374)t(cid:396)y"s ad(cid:448)a(cid:374)tage (cid:449)ould (cid:271)e eithe(cid:396) natural or acquired. Natural advantage considers climate, natural resources, and labor force availability.