Free Trade
No government interference tariffs or quotas on trade between countries.
David Ricardo's Theory
Comparative Advantage: Related to differences in labor productivity
, Comparative advantage: countries should engage in the business activities they do best & then trade with others.
Hecksher and Ohlin
Comparative advantage arises from differences in national factor endowments
(the more abundant a factor the lower its cost)
Ray Vernon
Looking a products life-cycle
Paul Krugman
the world market can only support a limited number of firms in some industries (first mover advantages)
Michael Porter
importance of country factors (dominance)
Absolute Advantage
Producing a product most efficient than any other country
Comparative Advantage
The ability of a country to produce a good at a lower cost than another country can.
Mercantilism
countries best interest to export more than it imports (Creates a zero sum game)
Zero-Sum Game
A situation in which one person's gain is another's loss (A Winner and A Loser)
Smith
countries should specialize in the production of goods that they have absolute advantage
Immobile Resources
Resources do not always move freely from one economic activity to another,
Samuelson Critique
concerned with the ability to offshore service jobs
Leontief Paradox
said US would export more capital intensive goods and import more labor intensive goods. But later found US exports were less capital intensive than imports.
What theory did NOT Suggest that there could be gains from specialization and trade?
Mercantilism, because it a different idea.
Product life-cycle theory
Raymond Vernon: as products mature, sales and location will change, affecting the flow of trade..
What is the main competitive weapon
Price
Which theory viewed trade as a zero sum game?
Mercantilism
Economies of scale
as supply goes up price goes down
First mover advantages
first to successfully develop the market gain in an industry
New Trade Theory
gains from specialization, increases economies of scale and first mover advantages
Porters Diamond
Competitive Advantage:
1. Factor Endowments
2. Demand Conditions
3. Relating and Supporting Industries
4. Firm Strategy, Structure & Rivalry
Economies of scale and first mover advantages are central to which theory of trade?
New Trade Theory
Porters Diamond is made up all of
1) Factor endowments, 2) related and supporting industries,3) firm strategy, structure, and rivalry. 4) & Demand Conditions