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Who are mercantilists? What policies did they advocate and did the expect thes policies to be achieved? Explain the problem associeted with their policies. What is the ralationship between these policies and absolute advantage? Do you believe that these paolicies are currently being practiced and which country and how?

Question

Who are mercantilists? What policies did they advocate and did the expect thes policies to be achieved? Explain the problem associeted with their policies. What is the ralationship between these policies and absolute advantage? Do you believe that these paolicies are currently being practiced and which country and how?

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Step 1

The mercantilists are the people or community, who follow the path of mercantilism. The mercantilism was an economic system of trade that spanned from the 16th century to the 18th century.

The word Mercantilism is originated from the Latin word “Mercari” which means “to run a trade”. The mercantilism was mainly dominant in Europe. It supports the government intervenes in an economy for the purpose of augmenting state power.

According to Mercantilism, there are some assumptions that are,

  1. A nation can grow rich only at the expense of another country.
  2. Wealth is measured by the number of precious metals in the country.
  3.  There is a finite amount of wealth in the world, trade is a zero-sum game.
  4. The goal is a positive trade balance that is, exports exceed imports.
Step 2

The main policy that they advocated was to promote export and achieve a positive trade balance. To achieve this, the mercantilism theory suggests that the government should play an active role in the economy by encouraging exports and restraining imports, by the tariffs.

Adam Smith has described some problems in mercantilism theory. There are the following problems associated with their policies.

  1.  When trade is freely initiated, it benefits both the countries.
  2. When one country trade with another country then both countries have specialization in production and it allows for economies of scale, which improves efficiency and growth.
  3.  The collusive relationship between government and industry was harmful to the general population.
  4. The mercantilist policies were designed to benefit the government and the commercial class, ignoring farmers and lower group.
Step 3

In absolute advantage, trade is a positive-sum game whereas, in mercantilism trade is a zero-sum game.

Explanation: according to Smith, countries should specialize in the production of goods for which they have an absolute advantage and trade these produced goods with...

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