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16 Cards in this Set

  • Front
  • Back
free trade
the absence of barriers to the free flow of goods and services between countries
an economic philosophy advocating that countries should simultaneously encourage exports and discourage imports
zero-sum game
a situation in which an economic gain by one country results in an economic loss by another
absolute advantage
a country has an absolute advantage in the production of a product when it is more efficient than any other at producing it
positive-sum game
a situation in which all countries can benefit even if some benefit more than others
comparative advantage
the theory that countries should specialize in the production of goods and services produce most efficiently. a country is said to have a comparative advantage in the production of such goods and services
economies of scale
cost advantages associated with large-scale production
product life-cycle theory
early in their life cycle, most new peoducts are produced and exported from the country in which they are developed, as a new product becomes widely accepted internationally, production starts in other countries
new trade theory
stresses that in some cases countries specialize in the production and export of partiuclar products not because of underlying differences in factor endownments, but because in certain industries the world market can support only a limited number of firms (leads to first-mover advantage)
national competitive advantage
Michael Porter, attempts to explain why particular nations achieve international success in particular industries. in addition to factor endowments, porter points out the importance of country facotrs such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products
neo-mercantilist belief held by the politicians of many nations
comparative advantage, arises from differences in productivity
Heckscher-Ohlin Theory
comparative advantage arises from differences in national factor endowments (land, labor, captital), makes fewew simplifying assumptions than Ricardo's theory
Leontief paradox
using the heckscher-ohlin theory, leontief postulated that beause the US was relatively abundant in capital compared to other nations, the US would be an exporter of capital-intensive goods and an importer of labor-intensive goods. to his surprise, he found that US exports were less capital intensive than US imports
new trade theory
suggests trade offers an opportunity for mutual gain even when countries do not differ in their resource endowments of technology, for those products where economies of scale are significant and repreent a substantial proportion of world demand, the first movers in an industry can gain a scale-based cost advantage that later entrants find almost impossible to match
Porter's diamond
four attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage
1. factor endowments
2. demand conditions
3. relating and supporting industries
4. firm strategy, structure, and rivalry