Chapter 2

Question 1

When was mercantilism advocated

Answer 1

17th and 18th centuries

Question 2

Who wrote the essays, pamphlets on international trade that advocated mercantilism

Answer 2

Merchants, bankers, government officials, and philosophers

Question 3

Mercantilists definition of rich was

Answer 3

Exports > imports

Question 4

According to Mercantilists, What will the export surplus result in

Answer 4

Inflow of gold and silver

Question 5

According to the mercantilists, the more gold and silver a nation had

Answer 5

The richer and more powerful it was

Question 6

Who had to stimulate the nation’s exports and discourage imports

Answer 6

The government

Question 7

How did mercantilists measure wealth of nation

Answer 7

By stock of metals it possessed

Question 8

How measuring wealth today differs from how mercantilists used to measure wealth

Answer 8

Wealth is measured by its stock of humans, goods, and services to satisfy human wants .

Question 9

Trade zero sum game

Answer 9

A nation could gain in trade only at expense of other nations

Question 10

How did Adam Smith see the trade between two countries

Answer 10

Both nations must gajn

Question 11

Which group of Economists advocated the policy of laissez-faire?

Answer 11

Classical Economists

Question 12

According to classical Economists, free trade would

Answer 12

Cause world resources to be utilised efficiently

Question 13

Assumptions of the trade based on absolute advantage theory

Answer 13

1) No international mobility of factors but free mobility within the nation
2) Two nations, two-good world
3) Perfect competition
4) No transportation costs
5) Labour theory of value
6) no trade restrictions

Question 14

According to Adam Smith, trade between two nations is based on

Answer 14

Absolute advantage

Question 15

Define Absoulte advantage

Answer 15

Producing commodities more efficiently over another nation

Question 16

According to Adam Smith, if one nation has an absolute advantage over another in the production of good 1 but has an absolute disadvantage in producing good 2 then

Answer 16

Both nations can gain by specialising in the production of the commodity of its absolute advantage and exchanging part of its output

Question 17

Labour theory value

Answer 17

Commodities were valued relatively in terms of their relative labour content.

Question 18

If the domestic exchange rate in the US is 6w:4c in absence of trade and in presence of trade the US has an international exchange rate of 6w:6c if the US exchanged wheat for cloth internationally then the US will gain how many?
(Knowing that commodities are valued according to the Labour value theorm)

Answer 18

The US will gain 2C or save 1/2 hour of labour time (since the US can only exchange 6w for 4c domestically)

Question 19

If the domestic exchange rate in the UK is 1w:5c in absence of trade, and in presence of trade the Uk has an international exchange rate of 6w:6c if the Uk exchanged cloth for wheat internationally then the UK will gain how many?
(Knowing that commodities are valued according to the Labour value theorm)

Answer 19

The UK will gain 24C or saves almost five labour hours

Question 20

Mercantilist advocated _____________

Answer 20

Government intervention in all economic activities and trade