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Assignment111 BX3021 - Assignment BX3021 Question 1...

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Assignment BX3021 Question 1: Synopsis of Trade Theories Mercantilist theory: A political and economic policy seeking to advance a state above others by accumulating large quantities of precious metals and by exporting in large quantity while importing in small. Absolute advantage: The name for the ability of one entity to engage in more efficient production than another entity. Assuming equal inputs, the entity with an absolute advantage will have a greater output. Comparative advantage: the ability of one business entity to engage in production at a lower opportunity cost than another entity. Comparative advantage, rather than absolute advantage, is useful in determining what should be produced and what should be acquired though trade. Heckscher-Ohlin theory: differences in relative factor endowments among nations underlie the basis for trade Product Life-Cycle Theory: This theory states how a country's export can later become its import through different stages in the product life cycle; New Product stage, Maturing Product stage and Standardized Product stage New Trade theory: is the economic critique of international free trade from the perspective of increasing returns to scale and the network effect National competitive advantage: attempts to analyse the reasons for a nation’s success in a particular industry through factor endowments, demand conditions, related industries and firm strategy, structure and competition. The Concertina Model : is an international trade model in international economic trade theory as a means of moving away from high-tariffs towards free trade Increasing-returns trade theory: asserts that a nation can develop an industry that has economies of scale, produce that good in great quantity at low average unit costs, and then trade those low-cost goods to other nations. Question 3: Pros and Cons of Bilateral Free Trade Agreement Introduction The free trade argument is, in principal persuasive. It states that if each nation produces what it does best and permits trade, over the long run all will enjoy lower prices and higher levels of output, income, and consumption than could be achieved in isolation. In a dynamic world, comparative advantage is constantly changing due to shifts in technologies, input productivities, and wages, as well as tastes and preferences. A free market compels adjustment to take place. Often proponents of protectionism say that free trade is fine in theory, but it does not apply in the real world. Job protection, protection against cheap foreign labour, fairness in trade, maintenance of domestic standard of living, infant industry argument, are just some of the issues FTA fail to satisfy. (incorporate each of the three points pro and cons in the introduction The underlying rationale FTA is the belief that international trade is a win-win proposition.
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