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5-7
2004 Prentice Hall, Inc
Natural Advantage
Countries have inherent advantages
• Climate • Natural resources • Labor forces
Two countries that have opposite natural advantages should favor trade with one another
5-4
2004 Prentice Hall, Inc
Mercantilism Terms
Favorable balance of trade: country is exporting more than it is importing Unfavorable balance of trade: country is importing more than it is exporting, i.e. a trade deficit Neomercantilism: current term to describe the approach of countries that try to run favorable balances of trade to achieve some social or political gains
Explain trade theories Discuss how global efficiency can be increased through free trade Introduce prescriptions for altering trade patterns Explore how business decisions influence international trade
5-2
2004 Prentice Hall, Inc
General Types of Trade Theories
Descriptive: the natural order of trade
• Tolerant conditions • Which products, how much, and with whom a country will trade in the absence of restrictions
Initial trade theory that formed the foundation of economic thought from 1500 – 1800 Based on concept that a nations wealth is measured by iΒιβλιοθήκη Baidus holding of treasure (gold) Nations often imposed restrictions on imports since they did not want “their” treasure moving to another country to pay for the imports It was also advantageous to run a trade surplus with “colonies”
2004 Prentice Hall, Inc
5-8
Acquired Advantage
Most contemporary trade is manufactured goods and services rather than agricultural goods or natural resources An acquired advantage represents a distinct advantage in skills, technology, and assets that yields differentiated products and/or costcompetitive products. Countries with an acquired advantage produce manufactured goods and services competitively • Product technology • Process technology
5-5
2004 Prentice Hall, Inc
Absolute Advantage
Absolute advantage holds that different countries produce some goods more efficiently than other countries Thus, global efficiency can be increased through international free trade
International Business 10e Daniels/Radebaugh/Sullivan
International Business
Chapter Six International Trade Theory
2004 Prentice Hall, Inc
5-1
Chapter Objectives
Prescriptive: questions whether governments should interfere with the free movement of goods and services
5-3
2004 Prentice Hall, Inc
Mercantilism
2004 Prentice Hall, Inc
5-6
Country Specialization
Under the concept of absolute advantage countries could increase efficiency because:
Labor could become more skilled by repeating the same tasks Labor would not lose time in switching from the production of one kind of product to another Long production runs would provide incentives for the development of more effective working methods
2004 Prentice Hall, Inc
Natural Advantage
Countries have inherent advantages
• Climate • Natural resources • Labor forces
Two countries that have opposite natural advantages should favor trade with one another
5-4
2004 Prentice Hall, Inc
Mercantilism Terms
Favorable balance of trade: country is exporting more than it is importing Unfavorable balance of trade: country is importing more than it is exporting, i.e. a trade deficit Neomercantilism: current term to describe the approach of countries that try to run favorable balances of trade to achieve some social or political gains
Explain trade theories Discuss how global efficiency can be increased through free trade Introduce prescriptions for altering trade patterns Explore how business decisions influence international trade
5-2
2004 Prentice Hall, Inc
General Types of Trade Theories
Descriptive: the natural order of trade
• Tolerant conditions • Which products, how much, and with whom a country will trade in the absence of restrictions
Initial trade theory that formed the foundation of economic thought from 1500 – 1800 Based on concept that a nations wealth is measured by iΒιβλιοθήκη Baidus holding of treasure (gold) Nations often imposed restrictions on imports since they did not want “their” treasure moving to another country to pay for the imports It was also advantageous to run a trade surplus with “colonies”
2004 Prentice Hall, Inc
5-8
Acquired Advantage
Most contemporary trade is manufactured goods and services rather than agricultural goods or natural resources An acquired advantage represents a distinct advantage in skills, technology, and assets that yields differentiated products and/or costcompetitive products. Countries with an acquired advantage produce manufactured goods and services competitively • Product technology • Process technology
5-5
2004 Prentice Hall, Inc
Absolute Advantage
Absolute advantage holds that different countries produce some goods more efficiently than other countries Thus, global efficiency can be increased through international free trade
International Business 10e Daniels/Radebaugh/Sullivan
International Business
Chapter Six International Trade Theory
2004 Prentice Hall, Inc
5-1
Chapter Objectives
Prescriptive: questions whether governments should interfere with the free movement of goods and services
5-3
2004 Prentice Hall, Inc
Mercantilism
2004 Prentice Hall, Inc
5-6
Country Specialization
Under the concept of absolute advantage countries could increase efficiency because:
Labor could become more skilled by repeating the same tasks Labor would not lose time in switching from the production of one kind of product to another Long production runs would provide incentives for the development of more effective working methods