Ch5: International Trade Theory Flashcards Preview

International Business > Ch5: International Trade Theory > Flashcards

Flashcards in Ch5: International Trade Theory Deck (19)
Loading flashcards...

free trade

refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country


international trade

exchange of raw materials and manufactured goods (and services) across national borders


new trade theory

stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms



export more than it imports
- zero-sum game


zero-sum game

is one in which a gain by one country results in a loss by another


Absolute Advantage

- Smith argued that countries differ in their ability to produce goods efficiently
- thus, a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it


comparative advantage

it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to buy the goods that it produces less efficiently from other countries,


constant returns to specialization

we mean the units of resources required to produce a good (cocoa or rice) are assumed to remain constant no matter


Heckscher-Ohlin Theory

They argued that comparative advantage arises from differences in national factor endowments


factor endowments

they meant the extent to which a country is endowed with such resources as land, labor, and capital


the pattern of trade is determined by factor endowments (2)

- exporting goods that make intensive use of locally abundant factors
- importing goods that make intensive use of factors that are locally scarce


product life-cycle theory

as products mature both the location of sales and optimal production location will change


Economies of scale

are unit cost reductions associated with a large scale of output


First mover advantages

are the economic and strategic advantages that accrue to early entrants into an industry


porters diamond (why a nation achieves international success) (4)

1. factor endowments
2. demand conditions
3. relating and supporting industries
4. firm strategy, structure, and rivalry


demand conditions

- the nature of home demand for the industry's product or service


relating and supporting industries

the presence or absence of supplier industries and related industries that are internationally competitive


firm strategy, structure, and rivalry

the conditions governing how companies are created,organized,and managed and the nature of domestic rivalry


implications for managers (3)

1. location
2. first-mover implications
3. policy implications