Introduction to Reasons for International Activity Flashcards
What is international economics?
Study of economic activity that occurs across international boundaries (trade, investment, operations, etc)
What are the major reasons for international economic activity?
1) Increase market for sale of goods or services
2) Obtain commodities
3) Obtain commodities at a lower cost
What is absolute and comparative advantage?
Absolute advantage- Ability for a country to provide a commodity at a lower cost than any other country. They are more efficient and require fewer inputs
Comparative advantage- ability of a country to produce a good or service with lower opportunities cost than another country or entity.
What is comparative advantage?
To maximize output:
- Entities should specialize in the goods or service they produce at the least opportunity cost
- Entities should trade with other entities for goods or services for which they do not have a comparative advantage.
What is the principle of comparative advantage?
The total output of two or more entities will be greatest when each produces the goods or services at their lowest opportunity cost and they engage in trade with each other.
What is Porter’s Four Attributes?
- Factor endowment- Advantage in factors of production
- Demand conditions- Nature of demand for a good or service. If there is a strong domestic demand, then the good or service is likely well-developed
- Relating and supporting industries- Extent to which supplier and related industries are internationally competitive.
- Firm Strategy, Structure, and Rivalry- How entities are created, organized, managed, and how they compete
What are Porter’s Four Outcomes that give NATIONAL ADVANTAGE?
- Availability of resources and skills
- information used to determine which opportunities to pursue with resources and skills
- Goals of individuals within entities
- Pressures on entities to innovate and invest
