Chapter 6

Question 1

Free Trade

Answer 1

a nation produces what they specialize in with no intervention. they get what they don’t produce from other countries. increase variety of products, lower costs

Question 2

Mercantilism

Answer 2

the currency of trade with gold and silver.

exports are good and imports are bad

Question 3

Mercantilism fallacies

Answer 3

gold itself doesn’t have actual value besides people wanting it. It only has value when being traded. and the zero sum game

Question 4

Zero sum game

Answer 4

Mercantilists failed to recognize the potential gains in efficiency that arise from the specialization. there is an uneven win/loss share

Question 5

Absolute advantage

Answer 5

the idea that some nations may be better at producing certain goods so they should focus on that to create more global efficiency through free trade.

Question 6

through speicalization

Answer 6

1. labor can become more skillful
2. switching costs can be minimized
3. the production can achieve economies of scale

Question 7

competitive advantage

Answer 7

although one party/nation has a better advantage, with free trade, they both can win/succeed/gain

Question 8

Limitations/assumptions of comparative advantage

Answer 8

1 Factors of production are immobile between countries. (labor and capital)
2 Perfect information exists as to international trade opportunities.
3 The world is composed of two countries and two commodities.
4 Transportation costs are ignored.
5 Resources can move freely from the production of one good to another.
6 There is no difference in technological levels between two trading partners.

Question 9

what is the lesson from international policy life cycle

Answer 9

it is most important to invest in knowledge/skills. To survive, you must keep innovating

Question 10

New trade theory

Answer 10

Trade increases the variety of goods availably and decrease costs with economies of scale. Then the market is only able to support a small number of firms. Large companies gain enormous political influence and can influence mass media. They become too big to fail so the winner takes all

Question 11

First mover advantage

Answer 11

being the first of a type of production in the market gives an advantage to develop economies of scale and create barriers for other firms to enter.

Question 12

the Porter’s Diamond

Answer 12

saying that money is made through innovation, new product design, marketing approach. The govt has to invest in education and continuously be upgrading/ improving the system

Question 13

the Porters Diamond 4 conditions

Answer 13

1. factors of production
2. demand conditions
3. related and supporting industries
4. rivalry

Question 14

factors of production

Answer 14

one part of porters diamond
factors like land, labor, capital and natural resources are heavily invested and highly specialized
however, there are high labor costs, lack of resources. motivator for competitiveness

Question 15

Demand Conditions

Answer 15

Sophisticated and demanding buyers pressure companies to meet high standards

Question 16

Related and Supporting Industries

Answer 16

Japanese automakers are successful
Excellent buyer-supplier relationships
Play as a team instead of working alone

Question 17

BOP

Answer 17

balance of payment- the US buys more than sells which becomes a trade deficit and that money comes back in the form of investments

Question 18

Current Account Deficit

Answer 18

=Net Capital Inflow

trade deficit offset by inflow

Question 19

Current Account Surplus

Answer 19

= Net Capital Outflow

trade surplus offset by outflow