Mkt 310 Exam 2 Study Guide

MKT 310 Exam 2 Study Guide BOOK Ch. 5 supranationalistic manage speculation An Overview of mass scheme * The Benefits of Trade Some international allot is beneficial, exchange harvest- categorys you mass parent at a imprint cost for well-nigh products you can non produce at all * Free Trade The absence of brass barriers to the free flow of swells and services between countries. * supranational dole out allows a unpolished to specialize in the manufacture and calling of products it can produce well-nigh efficiently while importing products that can be produced more(prenominal) efficiently in other countries. Climate and intrinsic imaginativenesss explain why Ghana exportings cocoa, and Saudi Arabia exports oil * ware Life-Cycle Theory Early in their life cycles, most new products are produced in and exported from the country in which they were develop. As the product becomes accepted internationally, toil begins to scram in other countries. Thus sugges ting that the product may ultimately be exported back to the country of its original innovation. impudently Trade Theory Theory that roughlytimes countries specialize in the proceeds and export of particular products non because of underlying differences in component endowments, but because in certain industries the earth foodstuff can swear except a limited follow of firms. Mercantilism * Mercantilism Originated in England, An stinting philosophy advocating that countries should simultaneously gain ground exports and discourage imports. It was in the countries best interest to maintain a trade surplus, to export more than it import. Also advocated g all overnment intervention to achieve a surplus in the balance of trade. Zero-Sum Game A situation in which an economic gain by maven country results in an economic loss by another. The flaw with Mercantilism is that it is viewed as a Zero-Sum Game. * Critics designate China is pursuing a neo-mercantilist society, del iberately keeping its currency care for low against the U. S. dollar in order to sell more goods to the U. S. , thereof creating a surplus and strange exchange reserves. absolute vantage * Absolute Advantage A country has an absolute advantage in the labor 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 own an absolute advantage and then trade these for goods produced by other countries. (Countries should never produce goods at home that it can buy at a lower cost from other countries. Comparative Advantage * Comparative Advantage It makes 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 less efficiently from other countries, even if this heart and soul buying goods from other countries that it could produce more efficiently itself. Basic depicted object of Comparati ve Trade Potential world production is great with broadcast-ended free trade than it is with restricted free trade. * Immobile Resources Resources do not always shift easily from on activity to another, some skirmish is involved. Belief that a country will produce less of some goods but more of others, however not everyone has the skills and knowledge to produce the greater good, then some people may lose their jobs. * Diminishing Returns When more units of a resource are involve to produce each special unit.First not all resources are of the same quality, and different goods use resources in different proportions. * Constant Returns to Specialization The units of resources required to produce a good are assumed to remain constant no matter where one is on a countrys production possibility frontier. * slashing Effects and Economic Growth Opening an economy to trade, great power extend a countries stock of resources as increased suppliers of labor and capital from ab road become available for use within the country, and free trade talent increase the force with which a country uses its resources. When a rich country(U. S. ) enters in free trade with a poor country(China) the lower termss 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 effect of free trade is to lower real wage rate in the U. S. * Evidence for the consort between Trade and Growth 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 endue with such resources as land, labor, and capital.. The Heckscher-Ohlin Theory predicts that countries will export those goods that make intense use of factors that are locally abundant, while importing good s 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 labour-intensive ones. However he found 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. grocerys 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 play 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 necessary to start producing the product as well. New Trade Theory The ability of firms to attain economies of scale might convey fundamental implications for international t rade. * Economies of Scale Unit cost reductions associated with a super scale of output * New Trade Theory makes 2 primal points * 1) Through its impact on economies of scale, trade can increase the kind of goods available to consumers and decrease the average costs of those goods. * 2) In those industries where the output required to attain economies of scale represents a solid 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 diminish to early entrants into an industry. The ability to capture scale economies forrader of later entrants, and thus benefit from a lower cost structure, is an important first movers advantage. * Implications of New Trade Theory generates for governing intervention and strategic trade policy, a nation may jibe from trade even if they do not differ in resource endowments or technology, trade allows a nation to special ize in the production of certain products&8212attaining scales of economy and lowering cost. tribeal Competitive Advantage Porters Diamond * Porter theorizes that 4 broad attributes of a nation specify the environment in which local firms make do, and these attributes promote or impede the cosmos 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 given industry (Advanced factors are the most significant competitive advantage. ) * Demand Conditions the temper of home demand for the indutrys product or service. Relating and Supporting Industries the presence or absence of supplier industries and cogitate industries that are internationally competitive. * Firm strategy, Structure, and Rivalry The conditions governing how companies are created, organized, and managed and the nature of house servant rivalry. * He argues that firms are most likely to suc ceed in nindustries or industry segments where the diamond is most favorable.. The diamond is a inversely reinforcing system meaning the effect of one attribute is contingent on the state of others. &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212 Ch. 6 The Political Economy of International Trade Instruments of Trade Policy * Tariffs A tariff is a tax levied on imports (or exports. ) In most cases tariffs are placed on imports to protect domestic producers from hostile competition by raising 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 reduce 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. ) * trade 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 subsidy is a government payment to a domestic producer. By lowering production costs, subsidies help domestic producers in 2 ways 1) competing against foreign 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 wasteful and promote excess production. Import Quotas and impulsive Export Restraints An import quota is a direct restriction on the quantity of some good that may be imported into a country * Tarif f Rate Quota The form 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 auto exports to the U. S. enforced by the Japanese locomote producers. * Quota Rent The extra profit producers make when supply is artificially limited by an import quota. Local Content Requirements A requirement that some specific fraction of a good be produced domestically. Ex. Buy the States Act specifies that government agencies essential give preference to American products when lay contracts for equipment out to bid unless the foreign products abide a significant price advantage. * Administrative Policies * Administrative Trade Policies Bureaucratic rules designed to make it punishing for imports to enter a country, as it has been argues that the Japanese are masters of this trade barrier. * Antidumpi ng 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 charter in dumping and thus protect domestic producers from unfair foreign competition. * Countervailing Duties Antidumping duties. Political Arguments for intervention * fostering Jobs and Industries Tariffs placed on steel in 2002 by G.W. Bush were supposed to do this. * National Security Protect the area of technological advancement, and the defense industries. * Retaliation Use threat to interact in trade policy as a bargaining neb to help open foreign markets and force trading partners to play by the rules. Ex. U. S. has used threat of punitive trade sanctions to try and get the Chinese government to enforce its intellectual property law s China cost Microsoft hundreds of millions of dollars per grade in lost sales revenues. * Protecting Consumers Ex.Many countries decided to ban imports of American beef after one case of Mad Cow complaint 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 &8212 this is controversial bc many think China doesnt regard human rights per the Tiananmen Square Massacre. * Protecting the Environment Strong affinity between income levels and environmental pollution/degradation. Ex. Carbon Emissions Tariff, etc. Economic Arguments for Intervent ion * The Infant Industry Argument New industries in developing countries must be temporarily protected from international competition to help them relieve oneself a position where they can compete on world markets with the firms of developed nations. Skepticism because shield of manufacturing from foreign competition does no good unless the protection helps make the industry efficient. Second, the infant industry argument relies on an surmisal 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 change 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 somehow go over that the firm(s) that gain first-movers advantage within an industry are domestic instead than foreign enterprises. * The second component of the str ategic trade policy is that it might pay a government to intervene in an industry by helping domestic firms overcome the barriers to entry created by foreign firms that have already reaped the benefits of first-movers advantage. Development of the World Trading System , GATT, WTO (Look in PPT slides for this info. )