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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 5 of 20
The real wordsTheory

Two measures of national wealth

This contrast is a favourite short question. Reproduce both halves and the chain at the end.

Mercantilist measureThe stock of precious metals the nation possessed.
Modern measureThe stock of human, man-made and natural resources available for producing goods and services.

The deck then gives the chain that makes the modern measure meaningful: the greater the stock of resources, the greater the flow of goods and services to satisfy human wants, and the higher the standard of living.

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