Chapter 2 Flashcards
(32 cards)
How much of the global output is destined for trade?
Nearly 60 percent
What country is the world’s largest exporter?
China
What is the trend in trade direction?
More than half of exports if developing countries goes to developed countries while 2/3 of exports from developed economies goes to other developed countries.
How has regionalization affected trade?
A larger percentage of trade is done within a region due to the increase in trade agreements. This affects how businesses outside these agreements will respond.
What are advantages of knowing our nation’s major trade partners?
Business climate in importing nations is already favorable, regulations will be limited, less home objections to buying from trade partners, transportation facilities are already established, import chanel members will be familiar with imports, foreign currency will be available and foreign government is possibly more supportive.
What countries are the top exporters to the US?
Canada, Mexico, Japan, Germany, the United Kingdom, Italy, France, Venezuela, Brazil, China, Singapore, South Korea, Taiwan, and India.
What is a trade deficit?
The value by which the value of imports into a country exceeds the value of exports.
What is a trade surplus?
That value by which the value of a nations exports exceeds the value of its imports.
What is mercantilism?
An economic philosophy based on belief that a nation’s wealth was based on acquisition of treasure (usually precious medals) and that government policies should promote exports and discourage imports.
What is the theory of absolute advantage?
The ability to produce more of a good than others at a lower cost.
What is perfect competition?
A market situation in which there is a sufficiently large number of well-informed buyers and sellers of a homogenous product.
What is David Ricardo’s theory of comparative advantage?
A nation that can produce a good at a lower cost than another nation has comparative/relative advantage in production of good where it cost the least.
What is absolute advantage?
When one entity can produce more of one good than another.
How are terms of trade determined?
The terms of trade is a point between two nations pre-trade price ratios for producing a specialized good respectively.
What is currency devaluation and what is it effect?
It is a reduction in the value of a nation’s currency relative to others. This can effectively lower the price of a nation’s export.
What are resource endowments?
Factors of production that one nation owns.
What is the theory of overlapping demand?
The concept that nations with similar levels of per capita income will be more inclined to trade with each other.
What is product differentiation and how does it relate to the overlapping demand theory?
It is unique features integrated into a product to increase demand for the product.
What are the four stages of the international product life cycle?
Stage 1 - New innovations become popular in a country and are exported.
Stage 2 - Foreign production takes over and export growth diminishes.
Stage 3 - Foreign competition arises and original exporters scale back as they focus on innovation.
Stage 4 - Import competition arrives at the place of origin for the product.
What is the economies of scale?
It is the predictable decline in average cost of producing each unit as the production facility grows.
How do economies of scale and the experience curve affect trade?
They lower the cost of production and give producers the comparative advantage.
What is Alfred Marshall’s theory why firms tend to cluster together on a geographic basis?
(1) the pooling of a common labor force can meet staffing requirements quickly, (2) specialized suppliers can coordinate with buyers, and (3) technological information can be shared easily.
What is national competitiveness?
The ability to design, produce, distribute, or service products internationally while earning increasing returns on its resources.
What are four variables that Michael Porter claims affects a firm’s competitiveness?
(1) Demand conditions - more complex demands creates higher-quality goods.
(2) Factor conditions - Inherited factors (land, location, etc.) and advanced factors (created from actions) can inspire growth.
(3) Related and Supporting Industries - Firms can pool resources and optimize production.
(4) Firm Strategy, Structure and Rivalry - Domestic competition and internationally driven companies can be more competitive as they look to the world.
