Chapter 16 IB

• What has happened to global trade over the past 70 years?

  There has been a huge increase in global trade.
• How have services grown compared to manufactured goods?

  Services have grown 3 times faster than trade in manufactured goods.
• What do countries do in terms of production and trade?

  Countries produce and export goods/services they make most efficiently and import those they produce less efficiently.
• What is the effect of specialization on global resource use and economic growth?

  Specialization increases global resource use and economic growth.
• How do economists view trade in relation to countries' growth?

  Economists call trade a “rising tide that lifts all boats,” meaning it helps all countries grow.
• What is the impact of lower trade barriers?

  Lower trade barriers increase the economic benefits of trade.
• What was the initial focus of lowering trade barriers?

  Initially, barriers were lowered for goods.
• What is the current focus of economists regarding trade barriers?

  Now, economists focus on reducing restrictions in services.
• What is Free Trade?

  Free Trade refers to policies aimed at minimal government interference in trade.
• What organization supports Free Trade policies?

  The World Trade Organization (WTO) supports Free Trade policies.
• What is Managed Trade?

  Managed Trade is where the government controls more of what can be traded.
• When did the U.S. move to Managed Trade?

  Since 2017, the U.S. has moved to Managed Trade.
• What actions did the Trump administration take regarding trade?

  The Trump administration used tariffs and agreements to limit trade with countries, especially China.
• What were the effects of U.S. tariffs on trade?

  1. S. tariffs led to retaliations from other countries, especially China.
• What are some impacts of Managed Trade?

  Managed Trade restricted trade growth, disrupted global supply chains, and increased costs for companies using imports.
• What is the definition of Free Trade?

  Free Trade is defined as no government intervention in what citizens buy from or sell to other countries.
• Who introduced the Theory of Absolute Advantage?

  Adam Smith introduced the Theory of Absolute Advantage in 1776.
• What does the Theory of Absolute Advantage advocate?

  The Theory of Absolute Advantage advocates that market forces should decide imports/exports, not government.
• What is the core idea of David Ricardo’s Theory of Comparative Advantage?

  A country should specialize in goods it produces most efficiently and import those it produces less efficiently.
• What is the significance of Ricardo’s Theory of Comparative Advantage?

  This theory supports the modern argument for free trade without restrictions.
• Who developed the Heckscher–Ohlin Theory?

  Eli Heckscher and Bertil Ohlin developed the Heckscher–Ohlin Theory.
• What does the Heckscher–Ohlin Theory focus on?

  The Heckscher–Ohlin Theory focuses on how a country’s resources determine what it should produce and trade.
• What is the importance of the Heckscher–Ohlin Theory?

  The Heckscher–Ohlin Theory supports free trade by considering resource advantages.
• Why is trade beneficial for countries?

  Trade benefits a country even for products it could produce itself.
• What are the key trade theories discussed in the study material?

  • Adam Smith’s Theory of Absolute Advantage
  • David Ricardo’s Theory of Comparative Advantage
  • Heckscher–Ohlin Theory
• What do the key trade theories show about countries and trade?

  They show that a country benefits by specializing in efficient production and trading for other goods.
• What is the insight regarding import limits?

  Import limits often help domestic producers but can harm domestic consumers by reducing choice and raising prices.
• Why are international trade patterns complex to explain?

  International trade patterns are influenced by multiple factors, making them difficult to fully explain.
• What does Ricardo’s Comparative Advantage explain about trade patterns?

  It explains that differences in labor productivity drive trade patterns.
• What does the Heckscher–Ohlin Theory focus on in terms of trade patterns?

  It focuses on factors of production, such as labor and capital.
• What does Vernon’s Product Life-Cycle Theory explain?

  It explains that production location shifts as products become widely accepted and mature.
• What does Krugman’s New Trade Theory emphasize?

  It emphasizes first-mover advantages and limited market capacity, explaining why some industries are dominated by only a few firms.
• What is the insight from New Trade Theory regarding specialization?

  Countries may specialize in products not due to resource differences but because only a few firms can compete globally in certain industries.
• What does Porter’s Theory of National Competitive Advantage explain?

  It explains why some nations excel in specific industries based on domestic demand, local competition, and networks of suppliers.
• What is the agreement among trade theories regarding international trade?

  All theories agree that international trade is beneficial for countries.
• What is the difference in policy recommendations among trade theories?

  Mercantilism advocates for government involvement, while Smith, Ricardo, and Heckscher–Ohlin support unrestricted free trade.
• When did Mercantilism emerge?

  Mercantilism emerged in 16th-century England.
• What is the core idea of Mercantilism?

  The core idea is that gold and silver are the main sources of national wealth and power.
• What is the trade surplus goal in Mercantilism?

  Countries should export more than they import to accumulate gold and silver.
• How does Mercantilism view trade?

  Mercantilism views trade as a zero-sum game where one country’s gain is another’s loss.