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Sem 5 Prep
← Intl TradeMercantilism and absolute advantage

Formulas for this chapter

Labour hours to produce a quantity

Hours = quantity required / output per labour hour

The base calculation for every gains-from-trade question in this chapter. Always use the productivity of the country you are standing in.

Quantity required
Units of the good to be produced or obtained
Output per labour hour
That country's productivity in that good

Labour-time saving from trade

Saving = (imports / own productivity in the imported good) - (exports / own productivity in the exported good)

When a question states an exchange and asks whether, or by how much, a nation gains. A positive answer for both nations proves the trade is mutually beneficial.

Imports
Quantity of the good received
Exports
Quantity of the good given up
Own productivity
Always the productivity of the nation whose saving you are computing
Step 3 of 20
The real wordsTheory

Mercantilism

MercantilismThe economic philosophy of the 17th and 18th centuries, in England, Spain, France, Portugal and the Netherlands: a nation could become rich and powerful only by exporting more than it imported.

The mechanics, from the deck:

  • Export surpluses brought an inflow of gold and silver, which your note calls bullion
  • Trade policy was therefore to encourage exports and restrict imports
  • One nation gained only at the expense of another

Your note dates the turn: this view prevailed before 1776 and Adam Smith's Wealth of Nations.

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