Podcast
Questions and Answers
Which of the following is NOT one of the three distinct stages of the product life cycle according to Vernon?
Which of the following is NOT one of the three distinct stages of the product life cycle according to Vernon?
- New Product
- Declining Product (correct)
- Maturing Product
- Standardized Products
What does Porter's National Competitive Advantage theory emphasize as critical for a nation's competitiveness?
What does Porter's National Competitive Advantage theory emphasize as critical for a nation's competitiveness?
- Low production costs
- The ability to innovate and upgrade (correct)
- Government regulations and policies
- Access to international markets
Which of the following is a barrier to entry as described in the Global Strategic Rivalry Theory?
Which of the following is a barrier to entry as described in the Global Strategic Rivalry Theory?
- Market saturation
- Research and development (correct)
- High consumer demand
- Product differentiation
What assumption does the Country Similarity Theory make about consumers in similar development stages?
What assumption does the Country Similarity Theory make about consumers in similar development stages?
Which determinant is NOT part of Porter's model of competitive advantage?
Which determinant is NOT part of Porter's model of competitive advantage?
What does Mercantilism promote regarding a country's trade strategy?
What does Mercantilism promote regarding a country's trade strategy?
Which theory suggests that a country should focus on producing goods requiring abundant and cheap resources?
Which theory suggests that a country should focus on producing goods requiring abundant and cheap resources?
What is the main idea behind Comparative Advantage?
What is the main idea behind Comparative Advantage?
In the context of international trade, what does the Leontief Paradox demonstrate?
In the context of international trade, what does the Leontief Paradox demonstrate?
Which trade theory was postulated by Adam Smith?
Which trade theory was postulated by Adam Smith?
What defines Intraindustry Trade?
What defines Intraindustry Trade?
What is the focus of the Heckscher-Ohlin Theory concerning trade?
What is the focus of the Heckscher-Ohlin Theory concerning trade?
What does opportunity cost refer to in international trade theory?
What does opportunity cost refer to in international trade theory?
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Study Notes
International Trade Theory
- International Trade involves the exchange of goods and services between entities in different countries through exporting and importing.
- Different theories exist to explain how and why international trade occurs.
Classical or Country-Based Trade Theories
- Mercantilism: Economic policy emphasizing that a nation's wealth is measured by its gold and silver reserves; promotes exports and restricts imports (protectionism).
- Absolute Advantage: Introduced by Adam Smith, asserts that a country efficiently produces goods at a lower cost than others, leading to better specialization.
- Comparative Advantage: Proposed by David Ricardo, focuses on a country’s ability to produce goods at a lower opportunity cost, guiding trade decisions based on efficiency.
- Heckscher-Ohlin Theory: Suggests countries export goods that utilize abundant, cheap factors of production and import goods necessitating scarce resources.
- Leontief Paradox: Identified by Wassily Leontief, reveals that capital-rich countries tend to import capital-intensive goods while exporting labor-intensive goods.
Modern or Firm-Based Trade Theories
- Intraindustry Trade: Examines trade of similar products within the same industry between countries.
- Country Similarity Theory: Proposed by Steffan Linder; suggests countries at similar development stages have analogous consumer preferences.
- Product Life Cycle Theory: Developed by Raymond Vernon; describes three stages of a product's lifecycle: New Product, Maturing Product, and Standardized Products, with production initially localized in the innovating country.
- Global Strategic Rivalry Theory: Introduced in the 1980s by Paul Krugman and Kelvin Lancaster; emphasizes multinational corporations (MNCs) gaining competitive advantages through strategic barriers like R&D, intellectual property, economies of scale, and resource control.
- Porter's National Competitive Advantage: Developed by Michael Porter, argues a nation's industry competitiveness relies on its ability to innovate and upgrade, based on four key determinants:
- Local Market Resources and Capabilities (Factor Conditions)
- Local Market Demand Conditions
- Local Suppliers
- Local Firm Characteristics
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