Ibm Unit 2 PPT Theories
Ibm Unit 2 PPT Theories
Ibm Unit 2 PPT Theories
international trade
Introduction
International trade becomes possible
for mutual benefits to the two
countries due to the differences in
opportunity cost
It has gain a comparative advantage
There are nine types of theories
developed by the international
economist
Types of theories
Mercantilism
Theory of absolute cost advantage
Comparative cost advantage
Comparative cost advantage with money
Relative factor endowments/HukscherOwen theory
Country similarity theory
Product life cycle theory
Global strategic rivalry theory
Porters national competitive advantage
Mercantilism
Holdings of the country treasure primarily in
form of gold constituted its wealth
It specifies that countries should export more
than they import and receive the value of
trade surplus in form of gold from those
countries which experience trade deficits
This theories suggest for maintaining
favorable balance of trade in the form of
import of gold for export of goods and
services
Neo-Mercantilism
It proposes that countries attempt to
produce more than the demand in the
domestic country in order to achieve a
social objective
It attack on the ground that the wealth of
a nation is based on its available goods
and services rather than the gold
Assumption of this
theory
Trade between two countries
Only two commodities are traded
Free trade exist between the
countries
The only element of cost of
production is labor
Implications
Two countries have more quantities of
both the products
Increased standard of living
Inefficiency in producing certain products
can be avoided
Global efficiency and effectiveness can be
increased
Global labor and resource productivity can
be increased
Criticism
No Absolute Advantage
Country size
Variety of resources
Transport cost
Scale economies
Absolute advantage for many
products
Comparative Cost
Advantage Theory
A country should produce and export
those products for which it is relatively
more productive than that of others
countries and import those goods for
which other countries are relatively more
productive than it is
Assumptions
Implications
Efficient allocation of global resource
Maximization of global production at least
cost
Product price become more or less equal
among world markets
Demand for resources and products
among world nation will be optimized
Criticisms
Two countries
Transportation cost
Two products
Full employment
Economic efficiency
Division of gains
Mobility
services
Relative factor
endowment
Factors endowments are:
Land
Capital
Natural resources
Labor
Climate etc
It may vary among countries
Land-labor relationship
Labor-capital relationship
Leontief paradox
Technological complexity