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International Business | 3P98 > Chapter 6 > Flashcards

Chapter 6 Flashcards

International Trade and Factor Mobility Theory

1
Q

Trade theory helps government policymakers and firm manager focus on these questions:

A
  • What products should we import & export?
  • How much should we trade?
  • With whom should we trade?
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2
Q

Some trade theories prescribe that

A

government should influence trade patterns; others propose a laissez-faire treatment for free trade

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3
Q

According to mercantilism

A

countries should export more than they import

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4
Q

Favourable balance of trade (trade surplus)

A

indicates that a country is exporting more than it imports

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5
Q

Unfavourable balance of trade (trade deficit)

A

indicates a country is importing more than it exports

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6
Q

Neomercantilism

A

is the running of a favourable balance of trade to achieve some social or political objective

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7
Q

Running a favourable balance of trade

A

is not necessarily beneficial

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8
Q

A country that practices neomercantilism

A

attempts to run an export surplus to achieve a social or political objective

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9
Q

Absolute advantage

A

holds that different countries produce different things more efficiently than others and that consumers should not have to buy domestically produced goods when they can buy them more cheaply abroad

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10
Q

According to Adam Smith

A

a country’s wealth is based on available goods and services for its residents rather than on gold

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11
Q

Specialization increases efficiency because

A
  • labour skills improve
  • less time is lost by not switching production
  • it incentivizes better working methods
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12
Q

Natural advantage

A

considers climate, natural resources, and labour force availability

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13
Q

Acquired advantage

A

occurs through either product of process technology

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14
Q

Free trade will bring

A
  • specialization
  • higher global output
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15
Q

Gains from trade will occur

A

even in a country that has absolute advantage in all products, because the country must give up less efficient output to produce more efficient output

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16
Q

Full employment is

A

not necessarily a valid assumption of absolute and comparative advantage

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17
Q

Countries’ goals

A

may not be limited to economic efficiency

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18
Q

Countries’ absolute and comparative advantages

A

can change

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19
Q

Free trade advantages

A

apply to services as well as physical products

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20
Q

Neither domestic labour mobility nor international labour immobility

A

is as great as implied by the free trade theories

21
Q

Theory of country size

A

countries with larger land masses usually depend less on trade than smaller ones

22
Q

Bigger countries (in terms of land mass) differ in several ways from smaller countries. They

A
  • tend to export a smaller portion of output and import a smaller part of consumption
  • have higher average transport costs for foreign trade
23
Q

Larger economies

A

are the biggest traders because they produce and consume more

24
Q

Factor proportions theory

A

differences in countries’ proportional endowments of labour, land, and capital explain differences in these endowments’ costs

25
Q

According to the factor proportions theory

A

countries have their best trade advantage when depending on their relatively abundant production factors

26
Q

Production factors, such as land and labour

A

are not homogeneous

27
Q

Companies may substitute

A

capital for labour, depending on the cost of each

28
Q

Countries with bigger markets

A

depend more on producing products requiring larger production runs

29
Q

Most new products

A

originate in developed countries

30
Q

Developed countries trade primarily with each other because they

A
  • produce and consume more
  • emphasize technical breakthroughs in different industrial sectors
31
Q

Product differentiation

A

causes countries to conduct two-way trade in seemingly similar products

32
Q

Trading partners are affected by

A
  • cultural similarity
  • political relations between countries
  • distance
33
Q

Product life cycle (PLC) theory of trade

A

1) introduction
2) growth
3) maturity
4) decline

34
Q

According to the PLC theory of trade

A

the production location for many products moves from one country to another depending on the stage in the product’s life cycle

35
Q

The introduction stage in PLC is marked by

A
  • innovation in response to observed need
  • exporting by the innovative country
  • evolving product characteristics
36
Q

Growth in PLC is characterized by

A
  • increases in exports by the innovating country
  • more competition
  • increased capital intensity
  • some foreign production
37
Q

Maturity in PLC is characterized by

A
  • a decline in exports from the innovating country
  • more product standardization
  • more capital intensity
  • increased competitiveness of price
  • production start-ups in emerging economies
38
Q

Decline in PLC is characterized by

A
  • a concentration of production in developing countries
  • an innovating country becoming a net importer
39
Q

Not all products

A

conform to the dynamics of the PLC

40
Q

Diamond of national competitive advantage

A

a theory showing 4 features as important for competitive superiority:
1) demand conditions
2) factor conditions
3) related & supporting industries
4) firm strategy, structure & rivalry

41
Q

According to the diamond of national competitive advantage theory

A

companies development and maintenance of internationally competitive products depends on favourable
- demand conditions
- factor conditions
- related and supporting industries
- firm strategy, structure and rivalry

42
Q

Domestic existence of all conditions

A
  • does not guarantee an industry will develop
  • is not necessary with globalization
43
Q

Factor mobility theory

A

focuses on why production factors move, the effects of that movement on transforming countries’ factor endowments, and the impact of international factor mobility on trade

44
Q

People and capital move internationally to

A
  • gain more income
  • flee adverse political situations
45
Q

Expatriate

A

a person who lives outside their native country

46
Q

Factor movements

A

alter factor endowments

47
Q

Brain drain

A

countries lose potential productive resources when educated people leave

48
Q

There are pressures for the most abundant factors

A

to move to areas of scarcity

49
Q

Factor mobility through foreign investment often

A

stimulates trade because of
- the need for components
- the parent company’s ability to sell complementary products
- the need for equipment for subsidiaries

International Business | 3P98 (13 decks)

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