Topic 5 International Trade Theories

In Mercantilism theory, trade surplus condition is a situation where:

• Export = Import

• Export > Import

• Import < Export

• Holding of gold/silver

Zero-sum game is a 'win-lose' situation

• True

• False

Which are true about Mercantilism theory?

• Country’s wealth is measured by its holding of gold and silver

• Government does not imposed any control

• Among the first theory and served as the foundation towards trading activities

• Countries will try to be in a trade deficit condition

Absolute advantage theory was introduced by

• Michael Porter

• David Ricardo

• Adam Smith

• Raymond Vernon

Country will produce only ONE product that it has absolute advantage. This refers to:

• Absolute advantage

• Comparative advantage

• Efficiency

• Specialization

Resources available = 200 units for each country

Production in Ghana

Cocoa = 10 tons

Rice = 5 tons

Production in South Korea

Cocoa = 2.5 tons

Rice = 10 tons

Question: Which country should specialize in producing Cocoa?

• Ghana

• South Korea

Resources available = 200 units for each country

Production in Ghana

Cocoa = 10 tons

Rice = 5 tons

Production in South Korea

Cocoa = 2.5 tons

Rice = 10 tons

Question: Which country should specialize in producing Rice?

• Ghana

• South Korea

Resources available = 200 units for each country

Production in Ghana

Cocoa = 10 tons

Rice = 5 tons

Production in South Korea

Cocoa = 2.5 tons

Rice = 10 tons

Question: South Korea has the absolute advantage in producing which product?

• Cocoa

• Rice

Resources available = 200 units for each country

Production in Ghana

Cocoa = 10 tons

Rice = 5 tons

Production in South Korea

Cocoa = 2.5 tons

Rice = 10 tons

Question: After specialization, which country will import Cocoa?

• Ghana

• South Korea

Resources available = 200 units for each country

Production in Ghana

Cocoa = 10 tons

Rice = 5 tons

Production in South Korea

Cocoa = 2.5 tons

Rice = 10 tons

Question: After specialization, which country will export Rice?

• Ghana

• South Korea