Mgcr 382 Class Notes
Chapter 6 International trade and Investment
Trade: the voluntary exchange of goods, services, assets, or money between one person or organization and another.
International Trade: Trade between residents of two countries. (believe they can benefit from voluntary exchange)
Classical Country-Based Theories: commodities
Mercantilism: 16th century economic philosophy - a country’s wealth is measured by its holding of gold and silver - promoting exports and discouraging imports. * Supporters: neomercantilists of protectionists (adapt some neo. policies to protect key industry) * Robs the freedom of people to trade and benefit from voluntary exchange and weakens the economy by forcing countries to produce goods not suited to them.
Theory of absolute advantage: country should export goods and services for which it is more productive than other countries and import those goods and services for which they are not
Theory of comparative advantage: a country should produce and export those goods and services for which it is relatively more productive than other countries are and import those goods and services for which other countries are relatively more productive than it is. * This theory looks at opportunity cost (value of what is given up to get the good)
Theory of relative factor endowments (Heckscher-Ohlin theory): * Factor endowments (types of resources) vary among countries. * Goods differ according to the types of factors that are used to produce them. * A country will have a comparative advantage in producing products that intensively use resources (factors of production) it has in abundance.
Leontief Paradox: took more money to import than to export due to capital and labor (didn`t account for other factors of production: human capital, land, technology)
Modern firm-based trade theory: for differentiated goods
Product life cycle theory:
Describe different marketing strategies as products mature. Three stages: new
Trade: the voluntary exchange of goods, services, assets, or money between one person or organization and another.
International Trade: Trade between residents of two countries. (believe they can benefit from voluntary exchange)
Classical Country-Based Theories: commodities
Mercantilism: 16th century economic philosophy - a country’s wealth is measured by its holding of gold and silver - promoting exports and discouraging imports. * Supporters: neomercantilists of protectionists (adapt some neo. policies to protect key industry) * Robs the freedom of people to trade and benefit from voluntary exchange and weakens the economy by forcing countries to produce goods not suited to them.
Theory of absolute advantage: country should export goods and services for which it is more productive than other countries and import those goods and services for which they are not
Theory of comparative advantage: a country should produce and export those goods and services for which it is relatively more productive than other countries are and import those goods and services for which other countries are relatively more productive than it is. * This theory looks at opportunity cost (value of what is given up to get the good)
Theory of relative factor endowments (Heckscher-Ohlin theory): * Factor endowments (types of resources) vary among countries. * Goods differ according to the types of factors that are used to produce them. * A country will have a comparative advantage in producing products that intensively use resources (factors of production) it has in abundance.
Leontief Paradox: took more money to import than to export due to capital and labor (didn`t account for other factors of production: human capital, land, technology)
Modern firm-based trade theory: for differentiated goods
Product life cycle theory:
Describe different marketing strategies as products mature. Three stages: new