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The Development of the Classical Theories of International Trade Between Countries

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The development of the classical theories of international trade between countries
March 30, 2016
Danel Louw
17752302
March 30, 2016
Danel Louw
17752302

Contents Introduction 1 1 Mercantilism 2 2 Absolute Advantage 2 3 Comparative Advantage 3 4 Factor Proportions 4 5 Bibliography 6

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* Introduction
International trade may seem simple. It is simply the exchange of goods between two people or entities from two different countries. People trade because they get some kind of benefit in the transaction. Sometimes it is something that they need and sometimes it is something that they desire.
International trade it is not always that simple. There is a lot of theory, business strategy and policy behind it. International trade can be described in many different ways. There are many different theories, classical and modern, that we use to describe International trade.

Mercantilism
Mercantilism was developed in the sixteenth century. It was the first effort in developing an economic theory at the time. This theory stated that a country’s wealth was determined by the amount of its gold and silver holdings (Anonymous, 2012). Mercantilists believed that a country should increase its holdings of gold and silver by promoting exports and discouraging imports. In other words the government would use policies to encourage exports while restricting imports. They would do this by rewarding merchants and producers with capital and by giving them tax exemptions. The merchants would then be more competitive both in the domestic and international economy so exports would increase and imports would decrease.

The main objective of mercantilism is to increase the power of the country. They believed that to increase power they needed money. They saying “Money is Power, and Power is everything”…...

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