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INTERNATIONAL TRADEINTRODUCTION
TRADE THEORIES Trade theories may be broadly classified into two types: (1) theories that deal with the natural order of trade (i.e. they examine and explain trade that would exist in the absence of governmental interference) and (2) theories that prescribe governmental interference, to varying degrees, with free movement of goods and services among countries. Category 1 Absolute advantage
Comparative advantage
Country size
Factor-Proportions theory
Figure 1. RCC Structure Figure 2. Steel Structure Product Life Cycle
Figure 3. The Product Life Cycle
Country-Similarity Theory
Category 2
WHY COMPANIES TRADE?
TRADE IMPEDIMENTS
GOVERNMENTAL INTERVENTION ON TRADE Reasons:
FORMS OF TRADE CONTROL
References: Baldwin, R. E. (1971). Determinants of the commodity structure of U. S. trade. American Economic Review, 61, pp. 126-146. Baldwin, R. E. (1979).Determinants of foreign trade and investment: Further evidence. Review of Economics and Statistics, 61, pp. 40-48 Which theory states that a country should export those products that it produces most efficiently?Comparative advantage theory states that a country should buy from other countries those products that it produces most efficiently and sell to other countries those products it cannot produce as efficiently.
Which theory explains that a country can produce goods at cost efficient cost?Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. The theory of comparative advantage introduces opportunity cost as a factor for analysis in choosing between different options for production.
Which theory states that a nation should produce?Which theory states that a nation should produce and sell goods to other countries that it produces most efficiently, and buy goods produced more efficiently by other countries? dumping.
Which theory refers to the ability of a country to produce more of a good or service than competitors using the same amount of resources?In economics, the principle of absolute advantage refers to the ability of a party (an individual, a firm, or a country) to produce more of a good or service than competitors while using the same amount of resources.
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