International Business Chapter 6. International Trade Theory

29 cards·by AntonellaAc

In what years was the mercantilism propagated and what it advocated?

Sixteenth and sventeenth centuries. That countries should simultaneously encourage exports and discourage imports

Whats the meaning for free trade?

Refers to a situation in which the government does not attepmpt to influence thourgh quotas or duties on what to buy, produce or sell

What Adam Smith argued about free trade?

That the invisible hand of the market mechanism should determine and the laussez-faire is in the best interests of a country

To who belongs the absolute advantage theory?

Adam Smith

To who belongs the competitive advantage theory?

David Ricardo

To who belongs the new trade theory and what it states?

Paul Krugman. In some cases countries specializes because in certain industries the world market can support limited number of firms

Which was the flaw with the mercantililsm?

That it viewed trade as a zero-sum game (gain by one results in a loss by another)

What's the best scenario in absolute advantage theory?

Is when Country A specializes in Good A and Country B in B, both production and consumption increases as result of specialization and trade

What would be the answer of David Ricardo if they ask if a country should trade if it has absolute advantage in production of all goods?

Yes, the country would benefit from trade by specializing in the production of good that it produces most efficiently

Suggest to see and practice p. 167-169 about competitive and absolute advantage. Cases

What are the 4 first unnrealistic assumptions of this model?

1)There are only 2 goods and 2 countries. 2)No transportation costs 3)No differences inprices or exchange rate 4)assum goods can move free

What are the last 4 unrealistic assumptions of this model?

5)Constant returns to scale 6)Each country has fixed stock of resources 7) assumed away effects of trade on income distribution

What's the PPF? It can move?

The Production possibility frontier. Yes

Wha's Paul Samuelson's critique?

Lowering prices in rich countries due to the international trade with poor countries may not be enough to produce a net gain

Do countries that adopt a more open stance toward international trade enjoy higher growth rather than those that close their ecocnomies?

Yes

What is said in Heckscher-Ohlin theorem?

That a country with abundant capital will export capital intensive goods and a labour abundant country will export labour intensive goods

Who questioned Hecksscher-Ohlin theorem and how?

Wassily Leontief with the Leontief Paradox founding that is all the way around. Mainly because of technology

Who created the product life-cycle theory and what is stated in it?

Raymond Vernon. Production of new products starts in developed countries Price fall and consumption and production + in developing countries

Whats a weakness of Vernon's theory ?

May be useful explaining the pattern of int trade during the periof of american dominance, itsrelevance in modern world is limi

What may be the cause of the pattern of trade we observe in the world ecoonomy?

That may be the result of economies of scale and first mover advantages

When is the cost per unit reduced?

When the total units produced +

What are economies of scope?

An increase in a variety of goods produced results in a decrease in a in the average of cost production

What are the factors of Porter's diamond?

Firm strategy, structure, rivalry; Demand conditions; related and supporting industries; factor endowments

What Porter suggest that are the most significant factors for competitive advantage?

advanced factors: communication infrastructure, sophisticated and skilled labor, research facilities and technological know-how

Why is the relationship between advanced and basic factors is considered complex?

Because basic fators can provide an initial advantage that is subsequently reinforced and extended by investment in advanced factors

How can you get competitive advantage in the demand conditions?

If their domestic consumers are sophisticated and demanding because pressure local firms to meet high standards of quality and innovation

For Porter, does the government affect in the 4 factors?

Yes

What is a cluster?

Geographically proximate groups of interconnected companies, supplier, service providers, associated instit in particular field, linked

What clusters do?

Increase productivity, increase capacity for innovation and this for productivity growth; stimulate and enable new business form to expand