Quiz 1 Chapters 4-5 Flashcards
What is merchantilism
-government involvement and policies that promote exports and limit imports
- utopic on paper but truly a zero sum gam
what is absolute advantage
-a country is more efficient and producing a product than any other country that produces it: Colombia and cocaine
-COINED BY ADAM SMITH
What is ADAM SMITHS’ opinion of what to do with absolute advantage
-SPECIALIZE IN THE GOODS THEY HAVE ABS-AVD OF FOR,
- TRADE FOR THE GOODS THEY HAVE A HARD TIME PRODUCING
-free trade enthusiasts
What is Comparative advantage
-COINED BY DAVID RICARDO
- COUNTRIES SHOULD SPECIALIZE IN THE PRODUCTION OF GOODS AND SERVICES THEY CAN
-Free trade enthusiast
what was HECKSHER-OHLINS trade idea
- In favour of international trade
- free market, unrestricted
COUNTRIES WILL EXPORT THOSE GOODS THAT MAKE INTENSIVE SE OF FACTORS THAT ARE LOCALLY ABUNDANT, WHILE IMPORTING GOODS THAT MAKE INTENSIVE USE OF FACTORS THAT ARE LOCALLY SCARCE - you can never have everything
What are some arguments for and against FREE TRADE
AGAINST
Protecting jobs and industries
National security
Retaliation
Protecting consumers
Furthering foreign policy objectives
Protecting human rights
FOR
The gains of trade arise because international trade allows a country to specialize in the manufacture and export of products that can be produced most efficiently in that country, while importing products that can be produced more efficiently in other countries.
- it makes sense to import scarce resources
- can create more affordable products for host countries through outsourcing labour (if ur cool with that)
what is NEW TRADE THEORY
- World can only support a limited amount of firms
- the weak shall perish
-economies of scale - increase product variety, reducing costs
- AGRUES THAT PRODUCT EFFICIENCY MAY NOT BE A RESOURCE ADVANTAGE WITHIN A COUNTRY, RATHER THE ABILITY TO BE THE FIRST MOVER IN AND OUT OF THAT COUNTRY
what is NATIONAL COMPETITIVE ADVANTAGE?
what are its determinants
-COINED BY MICHAEL PORTER
-Explains why particular nations achieve international success in particular industries
-highlights the importance of national rivalry and specialisation
- Demand conditions
- Relating and supporting industries
- Factor endowments
- Firm strategy, structure, and rivalry
What are location implications?
when a firm disperses its productive activities to those countries where, according to the theory of international trade, they can be performed most efficiently.
What are the implications of first mover advantages
-production of a particular new product that may subsequently dominate global trade in that product
-the ROI of investing substantial financial resources in trying to build a first mover, or early mover , advantage, is worth losing
What are the implications of Policy?
-theories of international trade matter to international businesses bc firms are major players in that scene.
-businesses can influence government trade policies and can lobby to promote free trade or trade restrictions.
what are the policy instruments of trade? (9)
-TARIFFS
-SUBSIDIES
-IMPORT QUOTAS
-VOLUNTARY EXPORT RESTRAINTS (VER)
-EXPORT TARRIFS
-EXPORT BANS
-LOCAL CONTENT REQUIREMENTS
-ADMINISTRATIVE POLICIES
-ANTI DUMPING POLICIES
LEAVE STAI
What are TARIFFS?
- AD VALOREM; levied as a proportion of the value of imported goods ; if taxes go up so do gas prices
- SPECIFIC TARIFFS; levied as a fixed charge
What are SUBSIDIES
GOVERNMENT PAYS DOMESTIC PRODUCER VIA; tax brakes, cash grants, low interest loans, etc
What are IMPORT QUOTAS
Direct restriction of the quantity of a certain good IMPORTED from another country
WHAT ARE VOLUNTARY EXPORT RESTRAINTS
Direct restriction of the quantity of a certain good being EXPORTED to another country
What are EXPORT TARRIFS
-Tax placed on an export of a good
-Discriminate against exporting to ensure there is an abundance of that resource in our country
What are EXPORT BANS
- A policy that partially or entirely restricts the export of a good.
- Pro consumer, better prices for consumers
WHAT ARE LOCAL CONTENT REQUIREMENTS
-Requirement can be expressed either in physical terms or value terms
- 75% of components must be produced locally OR 75% of the value of this product must be produced locally.
What are ADMINISTRATIVE POLICIES
-Things that the government does to make it difficult to conduct or move you business in your country/province
-Designed to inhibit free trade
What are ANTI-DUMPING POLICIES
-Selling goods in a foreign market at a lower price than their cost of production in host country
-Normally for shitty or defected products that cant sell in host country
what arguments can be made for political and economic government intervention in trade?
Political:
- Would it be better to train our population in better jobs instead tho
- Outsource the production of one good in order to train manufacturers in a better paying job that supports the economy more.
Economic:
- Boosting overall wealth for both people and businesses
What implications do Policies have for businesses (Trade barriers, firm strategy, and policies)
-TRADE BARRIERS AND FIRM STRATEGY
- Raise cost of exporting products to a country
- VERs may limit a firms ability to serve a country from location outside that country
- Local content requirements
POLICIES
- international companies will hire lobbyists
- governmental protection can backfire, and other governments can retaliate
- production activities in optimal locations around the world
