international trade
purchase, sale, or exchange of goods and services across national borders
pattern of international trade
dominated by flows among wealthy nations
mercantilism
trade theory that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and encouraging imports (works on trade surplus, govt intervention, and colonialism)
zero-sum game
an assumption of mercantilism that states a nation increases its wealth only at the expense of other nations (wealth is a fixed pie)
trade surplus
condition that results when the value of a nation's exports is greater than the value of its imports
trade deficit
condition that results when the value of a nation's imports is greater than the value of its exports
absolute advantage
ability of a nation to produce a good more efficiently than any other nation
positive-sum game
an assumption that states absolute advantage allows a country to produce goods in which it holds an absolute advantage and trade with other nations to obtain goods it needs but does not produce (not a fixed pie)
comparative advantage
inability of a nation to produce a good more efficiently than any other nation, but an ability to produce that good more efficiently than it does any other good.
factor proportions theory
states that countries produce and export goods that require resources (factors) that are abundant and import goods that require resources that are in short supply. a country will specialize in products that require labor if cost is low relative to the cos
Leontief paradox
the apparent paradox between predictions of factor proportion theory and actual trade flows
international product life cycle theory
a company will begin exporting its product and later undertake foreign direct investment as the product moves through its life cycle (stages: new product, maturing product, standardized product)
new product stage
the first stage of the international product life cycle when production remains based in the home country
maturing product stage
the second stage of the international product life cycle when production begins in countries with the highest demand
standardized product stage
the third stage of the international product life cycle when production moves to low-cost locations to supply a global market
new trade theory
argues that, as specialization and output increase, companies realize economies of scale that push the unit costs of production lower
first-mover advantage
the economic (economy of scale) and strategic advantage gained by being the first company to enter an industry
national competitive advantage theory
states that a nation's competitiveness in an industry, and trade flows, depends on the capacity of the industry to innovate and upgrade
porter diamond
identifies four elements that form the basis of national competitiveness: factor conditions; demand conditions; related and supporting industries; and firm strategy, structure, and rivalry.