Question

Taking into consideration the following trade theories: mercantilism, comparative advantage, factor proportions, and the product life cycle theory, what do each of these theories discuss with respect to the following: How much is traded? What products are traded? Should government control trade?

Answer 1

Taking into consideration the following trade theories: mercantilism, comparative advantage, factor proportions, and the product life cycle theory, what do each of these theories discuss with respect to the following: How much is traded? What products are traded? Should government control trade

Answer:  mercantilism views regarding trade is that it is related to the economic theory where there is government involvement in trade. According to them there is a need to establish estability in the economy and in the domestic market .

They are against import . According to them there is a need to increase export and reduce import . To increase the growth of the economy there is a need to increase export. If there is increment in export than this will help to generate more amount of wealth which will further increase investment of the economy.  

According to Ricardo country should have comparative advantage in atleast one commodity, and that country will export those good in which they have comparative advantage. suppose country 1 have comparative advantage in rice and country 2 have comparative advantage in wheat so both will trade and they will exchange both the commodity. Here government inervention is needed. so each country should specialise in atleast one commodity.

Raymond vernon was propounded product life cycle theory. This theory is reagarding failure of Heckscher - ohlin model. Here the concept is that county whch originally invented a product , that is inventor country at initial stage of invention export that commodity . But after some time interval when the product is being famous through international trade ,the country who was the inventor of that product import that commodity. There is government involment in the internatonal trade policy.

Factor proportions theory is also known as factor endownment theory. According to Hecksher and Bertil ohlin a country will export that coomodity . It is also called 2x2x2 model that is 2 countries , 2 commodities , 2 factors i.e labor and capital. According to them a country will export that commodity in which they have factor abundancy . suppose a country have more labor so that country will produce those goods by using labor more and export that commodity . similar case will be in capital intensive product , if a country is capital abundant than that country will export those commodity which have been produced by using capital. it is related to international trade so there is government involment in the international trade.