ADM 3318 Chapter Notes - Chapter 5: Mercantilism, Variable Cost, Comparative Advantage
Document Summary
Trade theory and government policy: the argument for unrestricted free trade is that both import controls and export incentives (such as subsidies) are self-defeating and result in wasted resources. Absolute advantage: firstly, a country has an absolute advantage in the production of a product when it is more efficient than any other country at producing it, i. e. Trade and simple extensions of the of the ricardian model: we"re going to relax some of the assumptions we make of the model. Diminishing returns: the belief that we get constant returns to specialization (costs stay the same as specialization increases) is unrealistic. Leontief found however, that the us imports were more capital intensive than imports. If international trade results in a country specializing in the production of a certain good, and if there are economies of scale in producing that good, then as output of that good expands, unit costs will fall. Less time to make the same amount of goods.
