Free trade
A situation where a government does not attempt to influence through quotas or duties what it's citizens can buy from another country or what they can produce and sell to another country.
Mercantilism
Suggests that it is in a country's best interest to maintain a trade surplus.
Trade surplus
To export more than imports.
Zero-sum game
One in which a gain by one country results in a loss by another.
Absolute advantage
That advantage that a country have when it is more efficient than any country in producing it.
Comparative advantage
Suggests that countries should specialize in the production of those goods they produce most efficiently and buy goods that they produce less efficiently from other countries, even if this means buying goods from other countries that they could produce mo
Factor endowments
The extent to which a country is endowed with resources like land, labor and capital.
Product life-cycle theory
As products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade.
New trade theory
Suggest that the ability of firms to gain economies of scale can have important implications for international trade.
Economies of scale
Unit cost reduction associated with a large scale of output.
First mover advantages
The economic and strategic advantages that accrue to early entrants into an industry.
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.
Porter's Diamond of Competitive Advantage
(Michael Porter) Tried to explain why a nation achieves international success in a particular industry and identified four attributes that promote or impede the creation of competitive advantage.
Attributes of Porter's Diamond of Competitive Advantage
1.- Factor endowments.
2.- Demand conditions.
3.- Relating and supporting industries.
4.- Firm strategy, structure and rivalry.
Location implication
A firm should disperse it's various productive activities to those countries where they can be performed most efficiently.
First-mover implications
A first-mover advantage can help a firm dominate global trade in that product.
Policy implications
Firms should work to encourage governmental policies that support free trade.
Balance of payments accounts (BPA)
Keep track of the payments to and receipts from other countries for a particular time period.
Current account (BPA)
Records transactions that pertain to goods, services and income, receipts and payments.
Current account deficit
When a country imports more than it exports.
Current account surplus
When a country exports more than it imports.
Capital account (BPA)
Records one time changes in the stock of assets.
Financial account (BPA)
Records transactions that involve the purchase or sale of assets.