MGC2120 Chapter Notes - Chapter 6: New Trade Theory, Diminishing Returns, Invisible Hand

• School: Monash University
• Department: Management
• Course: MGC2120
• Professor: Dr Lakmal Abeysekera

Document Summary

Trade theory and government policy. International business chapter 6 international trade theory. Free trade: no government intervention in terms of quotas or duties. There is the invisible hand of the market mechanism, should determine a country"s imports and exports. => output increases, both countries are beneficial. Moreover, a whole country is hurt by such action; limits on imports. Pattern of international trade: climate and natural resource, proportions of factors of production available in each country. Emerged in england in the mid- sixteen century. Principle assertion: gold and silver considered as currency of trade. In a country"s best interests to maintain a trade surplus, to export more than it imported. Advocated government intervention to achieve a surplus in the balance of trade. By engaging in trade and swapping products, producers in both countries could consume more of both products. Can see trade as a positive- sum game, produces net gains for all involved.