IBUS 3510 Lecture Notes - Lecture 6: Capital Account, New Trade Theory, Paul Krugman
3 May 2017
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Document Summary
David ricardo asked what happens when one country has an absolute advantage in the production of all goods. The theory of comparative advantage (1817) - countries should specialize in the production of those goods they produce most efficiently and buy goods that they produce less efficiently from other countries. Even if this means buying goods from other countries that they could produce more efficiently at home. Export goods that make intensive use of locally abundant factors import goods that make intensive use of factors that are locally scarce. New trade theory suggests that the ability of firms to gain economies of scale (unit cost reductions associated with a large scale of output) can have important implications for international trade. The current account records transactions of goods, services, and income, receipts and payments. Current account deficit - a country imports more than it exports.
