International Trade and Money summary [Distinction Level] Questions and Answers

International Economics - -The effects upon economic activity of international differences in productive resources and consumer preferences and the institutions that affect them. Explains the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration, economies of scale, etc. Science of cross-border relationships between countries -Mercantilism - -16th-17th Century When is a country right? When it owns a lot of gold (Bullionism) How does a country get rich? Promote exports, discourage imports (conquest or mercantilist policy; mercantilism on trade) -Classic Theory of Trade - -Adam Smith, The Wealth of Nations (1776) - explains international trade by referring to absolute advantages (in cost) David Ricardo, On the Principles of Political Economy and Taxation (1817) - explains international trade by referring to comparative advantages (relative cost) Models based on differences in technology between countries Tech differences - labor productivity differences (labor is the only production factor for both Ricardo and Smith) -How are costs defined in the classical framework? - -Opportunity costs -Absolute Advantages - -In economics, the principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources. -Comparative Advantages - -Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries Exists if a country faces lower opportunity cost while