Introduction and Reasons for International Activity

Question 1

What are the four broad national attributes (factors) identified by Michael Porter as promoting or impending the creation of competitive advantage by a country?

Answer 1

Porter’s four factors are:

1. Factor endowments - the factors of production
2. Demand conditions - nature of domestic demand
3. Relating and supporting industries - the international competitiveness of related industries
4. Firm strategy, structure, and rivalry - how companies are created, organized, managed, and compete

Question 2

Define “absolute advantage”.

Answer 2

Absolute advantage is the ability of a country, business, individual, or other entity to produce a particular good or serve more efficiently (with fewer resources) than another entity

Question 3

Define “comparative advantage”.

Answer 3

Comparative advantage is the ability of a country, business, individual or other entity to produce a particular good or service at a lower opportunity cost than the opportunity cost of producing the good or service by another entity

Question 4

Identify three major reasons for international economic activity.

Answer 4

1. To develop new markets for the sale of goods and services
2. To obtain commodities not otherwise available domestically
3. To obtain goods and services at lower costs than available domestically

Question 5

Identify some of the reasons for comparative advantage between countries.

Answer 5

Differences in availability of economic resources, including;

1. Natural resources
2. Labor
3. Technology