COMMERCE 4SA3 Chapter Notes - Chapter 5: Mercantilism, Factor Endowment, Paul Samuelson
3 Dec 2016
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Document Summary
Free trade- absence of barriers to the free flow of goods and services between countries. Product-lifecycle theory- suggests that early in their life cycle, most new products are produced in and exported from the country in which they were developed. Mercantilism- an economic philosophy advocating that countries should simultaneously encourage exports and discourage imports. In a country"s best interest to maintain a trade surplus to export more than it. Flaw is that it is a zero-sum game imported. Zero sum game- a situation in which an economic gain by one country results in an economic loss by another. Positive sum game- a situation in which all countries can benefit even if some benefit more than others. Absolute advantage- a country has an absolute advantage in the production of a product when it is more efficient than any other country at producing it. Comparative advantage- countries should specialize in the production of goods and services they can produce most efficiently.
