3. Select two international trade theories and critically discuss their usefulness in understanding today’s international business environment. Support your answer with EG

Question 1

What is in Intro

Answer 1

International trade is a branch of economics which is concerned with the trading of goods and services in foreign countries

In today’s business environment

1. Emerging markets
2. Speed of innovation
3. More informed buyers
4. Increased competition

Question 2

Definition of New Trade Theory

Answer 2

Developed by Paul Krugman in 1980’s.

It suggests that when businesses trade internationally using economies of scale, they gain many benefits

This is useful as it increases the variety of goods sold to a customer and decreases the average price of the goods as economies of scale involves buying in bulk

Question 3

Advantages of New Trade Theory

Answer 3

With trade, markets are large enough to support EOS

= Allows the specialisation of products + greater variety of products sold

Without trade: Might not produce products where economies of scale is important
=Expensive

Question 4

First mover advantages

Answer 4

Another element of the new trade theory is having first mover advantages - They are the first to enter in an industry = purely luck?

Eg Nintendo first in video games console industry. Microsoft with Xbox had to compete at a loss for years until they became top

= useful because they benefitted from economies of scale + prevents competition

Question 5

Definition of Mercantilism

Answer 5

Predominantly used in the 16th century. Government intervention to improve the economy by increasing exports and limiting imports using tariffs

History: Mother countries would colonise other countries for raw materials. Colonised countries weren’t allowed to trade with each other. Their pure existence was to give to mother countries

Question 6

Ads of Mechantilism

Answer 6

Global exploration as mother countries would search for raw materials all around the globe

Question 7

Disadvantages of merchantilism

Answer 7

1. Based on the complete use of natural resources eg Sugar
   = if ran out = economy collapse
2. War on who can dominate the seas
3. Argued that free trade is best for economic stability for free trade and lower tariffs