Mkt 310 Exam 2 Study Guide

MKT 310 Exam 2 depicted object Guide BOOK Ch. 5 International pile surmisal An Overview of affair Theory * The Benefits of Trade Some international merchandise is beneficial, exchange products you disregard puddle at a low m mavintary value for some products you quite a little non call forth at all * Free Trade The absence of authorities barriers to the secrete flow of goods and services between countries. * International commerce allows a realm to specialize in the manufacture and exportation of products it nookie produce virtually efficiently while importing products that can be produced practically efficiently in crude(prenominal) countries. Climate and natural resources explain why gold coast exports cocoa, and Saudi Arabia exports oil * Product Life-Cycle Theory Early in their behavior cycles, most new products ar produced in and exported from the state in which they were developed. As the product becomes accepted internationally, payoff begins to start in other countries. and so suggesting that the product whitethorn ultimately be exported back to the expanse of its sure innovation. mod Trade Theory Theory that sometimes countries specialize in the production and export of particular products not beca social occasion of underlying differences in cypher endowment funds, but beca character in certain industries the reality market can confirm exactly a limited quash of firms. Mercantilism * Mercantilism Originated in England, An economic philosophy advocating that countries should simultaneously encourage exports and discourage imports. It was in the countries high hat interest to maintain a trade surplus, to export more than it trade. excessively advocated government intervention to achieve a surplus in the proportionality of trade. Zero-Sum Game A situation in which an economic gain by star body politic results in an economic loss by another. The faulting with Mercantilism is that it is viewed as a Zero-Su m Game. * Critics think China is pursuing a neo-mercantilist society, deliberately keeping its currency cherish low against the U. S. dollar in order to sell more goods to the U. S. , olibanum creating a surplus and external exchange reserves. Absolute Advantage * Absolute Advantage A clownish has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. According to smith countries should specialize in the production of goods for which they have an absolute advantage and consequently trade these for goods produced by other countries. (Countries should never produce goods at fireside that it can buy at a lower cost from other countries. proportional Advantage * Comparative Advantage It constitutes sense for a country to specialize in the production of those goods that it produces most efficiently and to buy the goods that it produces little efficiently from other countries, even if this means buying goods from other countries that it could produce more efficiently itself. Basic Message of Comparative Trade authorisation world production is greater with un dependant free trade than it is with restricted free trade. * Immobile Resources Resources do not always shift intimately from on activity to another, some friction is involved. Belief that a country will produce less of some goods but more of others, provided not everyone has the skills and knowledge to produce the greater good, thus some sight may lose their jobs. * Diminishing Returns When more units of a resource argon required to produce each additional unit.First not all resources atomic number 18 of the same quality, and different goods use resources in different proportions. * Constant Returns to strong point The units of resources required to produce a good be assumed to tolerate constant no matter where one is on a countrys production possibility frontier. * Dynamic Effects and Economic developing Opening an deli very to trade, might increase a countries stock of resources as increase suppliers of wear out and capital from abroad become available for use inwardly the country, and free trade might increase the efficiency with which a country uses its resources. When a rich country(U. S. ) enters in free trade with a poor country(China) the lower prices that U. S. consumers pay for goods imported from China may not be enough to produce a net gain for the U. S. economy if the dynamic ensnare of free trade is to lower real engage rates in the U. S. * Evidence for the Link between Trade and branch Countries that adopt a more open stance toward international trade enjoy higher growth rates than those that close their economies to trade. Heckscher-Ohlin Theory Comparative advantage arises from differences in national factor endowment, and by factor endowment they meant the extent to which a country is endowed with such resources as land, labor, and capital.. The Heckscher-Ohlin Theory predict s that countries will export those goods that make intensive use of factors that are local anestheticly abundant, while importing goods that make intensive use of factors that are locally scarce. * The Leontief Paradox Since U. S. was relatively abundant in capital compared to other nations, the U. S. would export capital intensive goods and import labor-intensive ones. However he fig up that the U.S. exports were less capital intensive than the imports. The Product Life-Cycle Theory * Most new products were initially produced in the U. S. and sold in the U. S. markets first, the wealth and size of the U. S. can them strong incentives to develop new consumer products. , in addition the high cost of U. S. labor gave U. S. firms an incentive to develop cost-savings process innovations. These expensive goods are only appealing to the wealthy of other nations, thus there isnt that much overall global interest, so no other countries feel it is requirement to start producing the pro duct as well. New Trade Theory The competency of firms to attain economies of scale might have important implications for international trade. * Economies of scurf Unit cost reductions associated with a large scale of output * New Trade Theory makes 2 important points * 1) Through its impact on economies of scale, trade can increase the variety of goods available to consumers and decrease the intermediate costs of those goods. * 2) In those industries where the output required to attain economies of scale represents a significant proportion of total world demand, the global market may be able to support only a small number of enterprises. First-Movers Advantage are the economic and strategic advantages that accrue to archaeozoic entrants into an industry. The ability to capture scale economies ahead of later entrants, and thus eudaimonia from a lower cost structure, is an important first movers advantage. * Implications of New Trade Theory generates for government interventio n and strategic trade form _or_ system of government, a nation may befit from trade even if they do not differ in resource endowments or technology, trade allows a nation to specialize in the production of certain productsattaining scales of economy and intemperate cost.National Competitive Advantage Porters Diamond * Porter theorizes that 4 broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitve advantage. These attributes are * Factor Endowments A nations position in factors of production such as skilled labor or the infrastructure necessary to compete in a stipulation industry (Advanced factors are the most significant competitive advantage. ) * Demand Conditions the nature of home demand for the indutrys product or service. Relating and Supporting Industries the battlefront or absence of supplier industries and related industries that are internationally competitive. * steadfast s trategy, Structure, and Rivalry The conditions governing how companies are created, organized, and managed and the nature of nationalated rivalry. * He argues that firms are most likely to succeed in nindustries or industry segments where the rhombus is most favorable.. The diamond is a mutually reinforcing system meaning the effect of one attribute is contingent on the state of others. Ch. 6 The policy-making Economy of International Trade Instruments of Trade Policy * Tariffs A tax is a tax levied on imports (or exports. ) In most cases dutys are fixed on imports to protect domestic producers from alien competition by rhytidoplasty the price of imported goods. Tariffs also produce revenue for the government. The government and the domestic producers gain from having tariffs, whereas the consumers lose. * 2 conclusions can be made about tariffs First, tariffs are pro-producer and anti-consumer.Second, import tariffs quail the overall efficiency of the world economy. (Tariffs encourage domestic products to be sold at home when they could be more efficiently sold in the global market. ) * Export tariffs raise money for the government, and they reduce exports from a sector, often for political reasons. * 2 Types of Tariffs * Specific Tariffs Levied as a fixed charge for each unit of a good imported (ex. $3 per barrel of oil) * Ad Valorem Tariffs Levied as a proportion of the value of imported goods. Subsidies A gift is a government payment to a domestic producer. By lowering production costs, subsidies help domestic producers in 2 ways 1) competing against external imports and 2) gaining export markets. * Agriculture is the largest beneficiary of subsidies. * Non-Agriculture subsidy ex. Money given to Boeing and Airbus * The main gains from subsidies accrue to domestic producers, whose international competiveness is increased as a result. * Subsidies protect the inefficient and promote excess production. spell out Quotas and Voluntary Export Restraints An import quota is a direct restriction on the quantity of some good that may be imported into a country * Tariff Rate Quota The process of applying a lower tariff rate to imports within the quota than those over the quota. * Voluntary Export Restraint A quota on trade imposed by the exporting country, typically at the request of the importing countrys government. Ex. Limitation on railway car exports to the U. S. enforced by the Japanese automobile producers. * Quota Rent The extra expediency producers make when supply is artificially limited by an import quota. topical anaesthetic Content Requirements A requirement that some specific fraction of a good be produced domestically. Ex. Buy America snatch specifies that government agencies moldiness give preference to American products when putting contracts for equipment out to bid unless the unlike products have a significant price advantage. * Administrative Policies * Administrative Trade Policies Bureaucratic rules designed to make it difficult for imports to enter a country, as it has been argues that the Japanese are masters of this trade barrier. * Antidumping Policies Dumping Selling goods in a foreign market at below their costs of production or below their free market value. Ex. 2 South Korean manufacturers of semiconductors were accused of selling microchips in the U. S. market at below their cost of production. * Anti-Dumping Policies Policies designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition. * Countervailing Duties Antidumping duties. Political logical arguments for Intervention * protect Jobs and Industries Tariffs placed on steel in 2002 by G.W. Bush were hypothetical to do this. * National Security Protect the area of technological advancement, and the defense force industries. * Retaliation Use threat to intervene in trade policy as a bargaining tool to help open foreign markets and force tr ading partners to play by the rules. Ex. U. S. has used threat of retaliatory trade sanctions to try and get the Chinese government to enforce its expert property laws China cost Microsoft hundreds of millions of dollars per year in lost sales revenues. * Protecting Consumers Ex.Many countries decided to ban imports of American beef after one case of Mad Cow Disease was found. * Furthering Foreign Policies Objectives Governments sometimes use trade policy to further support their foreign policy objectives. * Helms-Burton Act This act allows American to sue foreign firms that use property in Cuba confiscated from them after the 1959 revolution. * DAmato Act Act passed in 1996, similar to the Helms-Burton Act, but this one is aimed at Libya and Iran. * Protecting Human Rights Ex.Debate over many years on whether to grant the Most Favorable Nation to China this is controversial bc many think China doesnt regard human rights per the Tiananmen significant Massacre. * Protecti ng the Environment Strong relation between income levels and environmental befoulment/degradation. Ex. Carbon Emissions Tariff, etc. Economic Arguments for Intervention * The Infant Industry Argument New industries in developing countries must be temporarily protect from international competition to help them reach a position where they can compete on world markets with the firms of developed nations. Skepticism because protection of manufacturing from foreign competition does no good unless the protection helps make the industry efficient. Second, the child industry argument relies on an assumption that firms are unable to make efficient long term investments by borrowing money from the domestic or international capital market. * Strategic Trade Policy A Government policy aimed at improving the competitive position of a domestic industry or domestic firm in the world market. It is argued that by appropriate actions, a government can help raise national income if it can someho w ensure that the firm(s) that gain first-movers advantage within an industry are domestic rather than foreign enterprises. * The second instalment of the strategic trade policy is that it might pay a government to intervene in an industry by helping domestic firms cover the barriers to entry created by foreign firms that have already reaped the benefits of first-movers advantage. Development of the domain of a function Trading System , GATT, WTO (Look in PPT slides for this info. )