International Business and Trade Overview
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Questions and Answers

What does International Business and Trade primarily involve?

  • Government regulations on imports and exports
  • Manufacturing processes in global markets
  • Exchange of goods, services, and capital across borders (correct)
  • Storage and distribution of goods

    • What main economic issue does the evolution of International Trade Theory address?

  • Unequal distribution of natural resources (correct)
  • Technological advancements in trade
  • Inefficient supply chains
  • Globalization and its effects

    • Which economic philosophy was dominant from the 16th to 18th century in shaping trade policies?

  • Absolute Advantage
  • Comparative Advantage
  • Mercantilism (correct)
  • Laissez-faire

    • What was the purpose of the Navigation Acts implemented by Great Britain?

    <p>To control colonial trade and promote British shipping</p> Signup and view all the answers

    According to Adam Smith's Theory of Absolute Advantage, which of the following should countries do?

    <p>Focus on goods where they can produce more efficiently</p> Signup and view all the answers

    How does David Ricardo's Theory of Comparative Advantage build on Adam Smith's ideas?

    <p>It introduces trade based on relative efficiency rather than absolute efficiency</p> Signup and view all the answers

    What is a necessary condition for the theory of Absolute Advantage to function optimally?

    <p>Countries need to have varying levels of production efficiency</p> Signup and view all the answers

    What key feature of Mercantilism influenced trade practices?

    <p>Focus on accumulating precious metals through a positive trade balance</p> Signup and view all the answers

    What was the surprising finding of Leontief's analysis of U.S. trade patterns?

    <p>The U.S. exported labor-intensive goods.</p> Signup and view all the answers

    What does the New Economic Geography focus on?

    <p>Why businesses and industries cluster in specific locations.</p> Signup and view all the answers

    What is a key prediction of the Gravity Model in economics?

    <p>Geographic proximity increases trade between countries.</p> Signup and view all the answers

    The 'Leontief Paradox' challenges which economic model?

    <p>The Heckscher-Ohlin Model.</p> Signup and view all the answers

    What does bartering involve?

    <p>Direct trading of goods or services without money.</p> Signup and view all the answers

    Why do businesses benefit from clustering in the New Economic Geography?

    <p>It enables sharing of resources and reducing costs.</p> Signup and view all the answers

    How does the Gravity Model relate to trade between countries?

    <p>It suggests larger economies will trade more with each other.</p> Signup and view all the answers

    In which scenario would the Leontief Paradox be illustrated?

    <p>A capital-abundant country imports shoes while exporting textiles.</p> Signup and view all the answers

    What advantage does bartering offer in terms of personal trade?

    <p>Ability to tailor exchanges based on individual needs</p> Signup and view all the answers

    How does bartering contribute to reducing waste?

    <p>By utilizing surplus goods that are not needed</p> Signup and view all the answers

    What role does bartering play in building community relationships?

    <p>It promotes trust and cooperation in exchanges</p> Signup and view all the answers

    In what situation is bartering particularly useful?

    <p>When money is scarce or unavailable</p> Signup and view all the answers

    What does the stability of value in a barter system imply?

    <p>The value of goods is unaffected by fluctuating currency values</p> Signup and view all the answers

    What is a significant challenge of the barter system?

    <p>Indivisibility of certain goods during trades</p> Signup and view all the answers

    Which historical items were used for trading before the introduction of money?

    <p>Specific valuable items like salt and metals</p> Signup and view all the answers

    What common issue arises when two parties engage in barter?

    <p>The seller must have what the buyer specifically needs</p> Signup and view all the answers

    What is the main focus of the Heckscher-Ohlin model?

    <p>Patterns of trade based on resource endowments</p> Signup and view all the answers

    In the Heckscher-Ohlin model, what does a country with abundant land typically specialize in?

    <p>Growing crops such as wheat</p> Signup and view all the answers

    What did Wassily Leontief's empirical study reveal about the U.S. trade patterns?

    <p>It exported labor-intensive goods and imported capital-intensive goods.</p> Signup and view all the answers

    How do countries benefit from focusing on their areas of specialization according to the Heckscher-Ohlin model?

    <p>By producing goods more efficiently and trading for others</p> Signup and view all the answers

    According to the Heckscher-Ohlin model, what should a country with a lot of labor generally export?

    <p>Labor-intensive goods like textiles</p> Signup and view all the answers

    What concept demonstrates how countries can increase production by trading with each other?

    <p>Comparative advantage</p> Signup and view all the answers

    What does the Heckscher-Ohlin model suggest about resource use in trade?

    <p>Resources should be used most efficiently according to abundance</p> Signup and view all the answers

    What main contradiction arises from the Leontief Paradox regarding the Heckscher-Ohlin model?

    <p>A capital-abundant country importing labor-intensive goods</p> Signup and view all the answers

    What was one of the primary reasons traders wanted to use metal pieces as money?

    <p>They were easy to carry.</p> Signup and view all the answers

    What is a significant challenge of the barter system?

    <p>Double coincidence of wants.</p> Signup and view all the answers

    Which of the following is an example of commodity money?

    <p>Precious metals like gold and silver.</p> Signup and view all the answers

    What major advantage did standardized coins provide over barter?

    <p>They had a universally recognized value.</p> Signup and view all the answers

    What problem did the introduction of coins help solve?

    <p>The total lack of standard currency.</p> Signup and view all the answers

    Why was paper money eventually introduced?

    <p>To avoid carrying heavy coins.</p> Signup and view all the answers

    What characteristic did coins possess that made them suitable for smaller transactions?

    <p>Divisibility.</p> Signup and view all the answers

    Who among the following is NOT associated with theories about the development of money?

    <p>John Maynard Keynes.</p> Signup and view all the answers

    Study Notes

    Evolution of International Trade

    • International Business and Trade (IBT) involves the exchange of goods, services, and capital across national borders.
    • IBT includes commercial activities and transactions between businesses or entities in different countries.
    • Trade theories evolve to address economic challenges, such as unequal resource distribution and geographical differences.

    Timeline of Development in Trade Theory

    • 16th-18th Century: Mercantilism

      • Wealth measured by precious metals; emphasized positive trade balance.
      • Protectionist policies like tariffs emerged to increase trade surpluses.

    • 17th & 18th Century: Economic Policies of Great Britain

      • Navigation Acts regulated colonial trade to enhance British shipping.
      • Required cargo destined for England or colonies to be transported on English or native ships.

    • 1776: Adam Smith’s Absolute Advantage

      • Countries should focus on goods they can produce more efficiently.
      • Example: Country A specializes in oil; Country B specializes in corn, facilitating trade benefits.

    • 1817: David Ricardo’s Comparative Advantage

      • Introduced comparative advantage; countries trade based on opportunity costs.
      • Heckscher-Ohlin model illustrates trade influenced by resource endowments, developing specialization.

    • 1950s: Leontief Paradox

      • Wassily Leontief’s study contradicted Heckscher-Ohlin theory; the U.S. exported labor-intensive goods instead of predicted capital-intensive goods.
      • Reveals complexities of actual trade behaviors contradicting theoretical expectations.

    • 1990s: New Economic Geography and Gravity Models

      • New Economic Geography explains clustering of businesses in regions for resource sharing and economic hubs.
      • Gravity Models predict trade flows based on GDP and geographical proximity.

    Barter System

    • Bartering involves direct trading of goods or services without money, allowing personalized exchanges.
    • Utilizes surplus goods, reducing waste and fostering community relationships.
    • Effective in situations lacking currency; helps during emergencies or in non-monetary economies.
    • Avoids currency fluctuations, as trades are based on direct value instead of monetary value.

    Problems of the Barter System

    • Requires a 'double coincidence of wants' where both parties desire what the other has.
    • Lacks a common standard to measure goods' values; indivisibility of certain goods complicates trades.

    Origin of Money

    • Transition from barter to money was driven by the need for efficient trade solutions.
    • Early commodity money included salt, metal, and livestock, which had inherent value.
    • The first coins appeared around 600 BCE, standardizing trade with recognized value based on metal content.
    • Coins addressed barter system issues such as lack of standard value, divisibility, and durability.

    Paper Money

    • Emerged as a solution to the inconvenience of carrying heavy metal coins, facilitating trade and exchanges.

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    International Business and Trade PDF

    Description

    This quiz covers the evolution and concepts of international business and trade (IBT). It explores the exchange of goods, services, and capital across borders and the international trade theory that influences economic interactions between nations. Test your knowledge on key aspects of IBT and its significance in global commerce.

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