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Exam_2_Study_Questions_Spring_2008

Exam_2_Study_Questions_Spring_2008 - CH 5 What are the...

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CH 5: What are the major theories of trade, both country-based and firm-based? How well do these theories perform in explaining inter-industry trade and intra-industry trade? Free Trade – The absence of government-imposed barriers, such as quotas or duties, that impede the free flow of goods and services between countries. Mercantilism – The economic philosophy advocating that countries should simultaneously encourage exports and discourage imports. Zero-Sum Game – A situation in which a gain by one country results in a loss by another. Absolute Advantage – When one country is more efficient than any other country in producing a particular product. Focused on exporting products in which the country is more productive. It doesn’t explain what happens if a country has an absolute advantage in both products. Comparative Advantage – Focus on products in which the country has a relative advantage. Incorporates opportunity cost and production possibilities. Doesn’t address sources of advantage. What are Porter’s guidelines for increasing competitiveness, and therefore, exports? o Factor conditions – a nation’s position in factors of production such as skilled labor or the infrastructure necessary to compete in a given industry o Demand conditions – the nature of home demand for the industry’s product or service o Related & supporting industries – the presence or absence of supplier industries and related industries that are internationally competitive o Firm strategy, structure and rivalry – the conditions governing how companies are created, organized, and managed and the nature of domestic rivalry o Innovation is the key CH 6: What are the two primary questions associated with trade policy? Should government intervene? What are the primary instruments of trade policy (both tariff and non-tariff barriers) and what are their effects?
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