IBT Flashcards
when they buy goods and services from other countries
importers
when they sell products to other nations
exporters
by subtracting the value of its imports from the value of its exports
balance of trade
The situation when a country exports more than it imports
trade surplus
The situation when a country imports more than it exports
trade deficit
is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services.
International trade
The advantage in the production of a good enjoyed by one country over another when it uses fewer resources to produce that good than the other country does.
Absolute advantage
The advantage in the production of a good enjoyed by one country over another when that good can be produced at lower cost in terms of other goods than it could be in the other country.
Comparative advantage
The ratio at which a country can trade domestic products for imported products.
terms of trade
The quantity and quality of labor, land, and natural resources of a country.
factor endowments
A theory that explains the existence of a country’s comparative advantage by its factor endowments: A country has a comparative advantage in the production of a product if that country is relatively well endowed with inputs used intensively in the production of that product.
: it says that a capital-abundant (labor-abundant) country will export the capital-intensive (labor-intensive) good and import the labor-intensive (capital-intensive) good
Heckscher-Ohlin theorem
Home-grown resources and natural endowments
Home factor conditions:
The ratio at which two currencies are traded. The price of one currency in terms of another.
exchange rate
the presence of internationally competitive suppliers.
Related and Supporting Industries:
refer to the basic fact that competition leads to businesses finding ways to increase production and to the development of technological innovations. The concentration of market power, degree of competition, and ability of rival firms to enter a nation’s market are influential here.
Firm strategy, structure, and rivalry
the condition governing firm creation
Home firm strategy, structure and Rivalry:
- explains the factors that can provide a competitive advantage for one national market or economy over another.
visually resembles the points of a diamond -and includes the factors of strategy, structure and rivalry, related industries, demand conditions, and factor conditions. - is used by businesses to guide and shape strategy regarding investing and operating in national markets.
The Porter Diamond Model
the nature of home demand for the industry’s products.
Home demand conditions:
refer to the size and nature of the customer base for products, which also drives innovation and product improvement. Larger, more dynamic consumer markets will demand and stimulate a need to differentiate and innovate, as well as simply greater market scale for businesses.
Demand conditions
refer to upstream and downstream industries that facilitate innovation through exchanging ideas. These can spur innovation depending on the degree of transparency and knowledge transfe
Related supporting industries
are those elements that Porter believes a country’s economy can create for itself, such as a large pool of skilled labor, technological innovation, infrastructure, and capital.
Factor conditions
Evolving mobile possibilities in relation with Internet.
Growing number of mobile owners. Mobile usage becomes cheaper and cheaper so it accessible for everybody.
Upcoming online businesses including App builders.
Government of county x stimulates Mobile Market regulation.
Demand conditions
Government of county x puts continuous efforts in IT policies.
IT Workforce is developing and growing.
Level of Education on mobile and Internet technology is high.
County x has geographical IT advantages.
Factors endowments
This country is leading in the microchip market.
There are two countries that are trading partners.
The government is planning to invest in Mobile R&D and IT development.
County x is leading in all Mobile & IT related production.
Related and supporting industry
Venture firms with high IT technology.
Firm and small and medium size IT business companies.
Market competition in Mobile telecommunication.
Target niche market by continuous development and improvement of Mobile technology.
Firm strategy and structure
The practice of shielding a sector of the economy from foreign competition.
protection
A tax on imports.
tariff
Government payments made to domestic firms to encourage exports.
export subsidies
A firm’s or an industry’s sale of products on the world market at prices below its own cost of production.
dumping
A limit on the quantity of imports.
quota
An agreement in which the United States and Canada agreed to eliminate all barriers to trade between the two countries by 1998.
U.S.-Canadian Free Trade Agreement
An agreement signed by the United States, Mexico, and Canada in which the three countries agreed to establish all North America as a free-trade zone.
North American Free Trade Agreement (NAFTA)
is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas.
General Agreement on Tariffs and Trade (GATT)
is the only international organization dealing with the global rules of trade. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible
WTO
providing a forum for trade negotiations, handling trade disputes.
Administering WTO trade agreements,
providing technical assistance and training for developing countries, and ensuring cooperation with other international organizations.
Monitoring national trade policies,
Occurs when two or more nations join to form a free-trade zone.
Economic integration
The European trading bloc composed of 27 countries (of the 27 countries in the EU, 16 have the same currency—the euro).
European Union (EU)
Trade destroys jobs in the industries that compete against imports.
- The jobs argument
An industry vital to national security should be protected from foreign competition, to prevent dependence on imports that could be disrupted during wartime.
- The national security argument
A new industry argues for temporary protection until it is mature and can compete with foreign firms.
- The infant-industry argument
Producers argue their competitors in another country have an unfair advantage,
- The unfair-competition argument
Example: The U.S. can threaten to limit imports
of French wine unless France lifts their quotas
- The protection-as-bargaining-chip argument
