Textbook Notes (368,122)
Australia (496)
Management (21)
MGC2120 (19)
Chapter 6

International Business Chapter 6 – International Trade Theory.pdf

3 Pages
37 Views
Unlock Document

Department
Management
Course
MGC2120
Professor
Dr Lakmal Abeysekera
Semester
Spring

Description
International  Business  Chapter  6  –  International  Trade  Theory   -­‐ Free  trade:  no  government  intervention  in  terms  of  quotas  or  duties.  There  is   the  invisible  hand  of  the  market  mechanism,  should  determine  a  country’s   imports  and  exports.    =>  output  increases,  both  countries  are  beneficial.     -­‐ Benefits  of  trade:  common  sense  suggests  that  some  trade  are  beneficial   a) why  trade  when  a  country  can  actually  better  producing  a  product  by   itself?  A  country’s  gain  if  citizens  by  products  from  other  nations  that   could  be  produced  at  home.     b) Allow  a  country  to  specialize  in  the  manufacture  and  products’  exports.     c) However,  sometimes  difficult  for  a  country’s  population  to  accept.   Moreover,  a  whole  country  is  hurt  by  such  action;  limits  on  imports     -­‐ Pattern  of  international  trade:  climate  and  natural  resource,  proportions  of   factors  of  production  available  in  each  country.     -­‐ New  trade  theory  suggests  that  some  countries  specialize  in  the  product  and   export  of  particular  products  because  in  certain  industries  the  world    market   can  support  only  a  limited  numbers  of  firms.     Trade  theory  and  government  policy   Mercantilism   -­‐ emerged  in  England  in  the  mid-­‐sixteen  century.     -­‐ Principle  assertion:  gold  and  silver  –  considered  as  currency  of  trade   -­‐ In  a  country’s  best  interests  to  maintain  a  trade  surplus,  to  export  more  than   it  imported.     -­‐ Advocated  government  intervention  to  achieve  a  surplus  in  the  balance  of   trade.     -­‐ Considered  as  a  zero-­‐sum  game:  which  a  gain  by  one  country  results  in  a  loss   in  another  country.     Absolute  Advantage   -­‐ it  is  when  a  country  is  more  efficient  producing  a  good  compare  to  another   country  producing  it.     -­‐ By  engaging  in  trade  and  swapping  products,  producers  in  both  countries   could  consume  more  of  both  products.     -­‐ Can  see  trade  as  a  positive-­‐sum  game,  produces  net  gains  for  all  involved.   Comparative  Advantage   -­‐ makes  sense  for  a  country  to  specialize  in  the  production  of  the  goods  than  it   produces  most  efficiently  and  to  buy  the  goods  that  it  produces  less   efficiently  from  other  countries.     -­‐ Potential  world  production  is  greater  with  unrestricted  free  trade  than  it  is   with  restricted  trade.     Extensions  of  the  Ricardian  model   Immobile  resources  –  resources  do  not  always  shift  quite  so  easily  from  producing   one  good  to  another.  The  process  creates  friction  and  human  suffering.  Political   opposition  to  the  adoption  of  a  free  trade  regime  typically  comes  from  those  whose   jobs  are  most  at  risk.     Diminishing  returns  –  constant  returns  to  specialization  mean  the  units  of   resources  required  to  produce  a  good  are  assumed  to  remain  constant  no  matter   where  one  is  on  a  country’s  production  possibility  frontier  (PPF).  Firstly,  no  all   resources  are  of  the
More Less

Related notes for MGC2120

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit