MGCR 382 Lecture 6: IB chapter 6
3 Apr 2016
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Trade: voluntary exchange of goods, services, assets, or money between one person or organization and another. International trade: trade between residents of two countries. What if one country has an absolute advantage in both products. Theory of absolute advantage: no trade would occur. Theory of comparative advantage: trade should still occur. You are better off specializing in what you do relatively best. Produce those goods and services you are relatively best able to produce. Buy other goods and services from people who are relatively better at producing them than you are. Price is an important component of the customers purchase decision. Focus on the firms role in promoting international trade. Useful in describing patterns of trade in differentiated goods. Brand name is an important component of the customers purchase decision. Adam smith attacked the intellectual basis of mercantilism. France has an absolute advantage in the production of wine. Japan has an absolute advantage in the production of clock radios.
