int business notes u2 ch 6 book

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48 Terms

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Mercantilism

An economic theory from the 16th and 17th centuries advocating export promotion and import restriction to accumulate wealth.

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Trade Surplus

A positive balance of trade where exports exceed imports, essential for national prosperity according to mercantilism.

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Absolute Advantage

A theory introduced by Adam Smith that suggests a country can produce a good more efficiently than another, benefiting from trade.

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Comparative Advantage

David Ricardo's theory stating that countries should specialize in producing goods they can produce most efficiently and trade for others.

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Heckscher-Ohlin Theory

A theory that asserts trade depends on a country's factor endowments (land, labor, capital), rather than just productivity.

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New Trade Theory

A theory that emphasizes economies of scale and first-mover advantages in shaping international trade patterns.

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Domestic Rivalry

The competition among firms within a country that fosters innovation and competitiveness in international markets according to Porter.

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Economies of Scale

The reduction in per-unit cost as production scales up, allowing firms to produce more efficiently.

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First-Mover Advantage

The competitive advantage gained by the first significant company to move into a market, achieving economies of scale early.

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National Competitive Advantage

Michael Porter's concept explaining why certain countries excel in specific industries based on various competitive factors.

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Trade Barriers

Government-imposed restraints such as tariffs and quotas that benefit producers but harm consumers.

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Laissez-Faire Approach

An economic philosophy advocating minimal government intervention in trade, allowing market forces to determine imports and exports.

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Market Forces

Natural economic factors that describe how supply and demand interact in trade without government interference.

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Subsidizing Exports

Government policies that aim to make domestic products more competitive in global markets by financially supporting exporters.

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Limiting Imports

Government interventions aimed at reducing foreign goods entering a domestic market, usually through tariffs or quotas.

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Thomas Mun

An economist known for articulating mercantilist principles, emphasizing a favorable balance of trade to increase national wealth.

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David Hume

An economist who critiqued mercantilism, arguing that trade surpluses could not be sustained over time.

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Zero-Sum Game Fallacy

The idea within mercantilism that trade benefits one country at the expense of another, discounted by later economists.

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Neo-Mercantilism

Contemporary policies resembling mercantilist thought, focusing on trade surpluses and government intervention in economies.

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Gains from Trade

The benefits derived from specialization and trade that lead to increased production and consumption.

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Product Life Cycle Theory

A theory stating that products start in their home country and gradually move abroad as they mature.

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Supportive Industries

Industries that facilitate creating competitive advantages by providing necessary inputs and technology.

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Domestic Demand

The demand for goods and services in a country's economy that influences innovation and industry competitiveness.

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Rivalry

Competition among local firms that stimulates improvements and maintains competitive positions in global markets.

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Management Ideology

The overarching management style adopted by firms in a country, which can enhance or hinder competitiveness.

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Factor Conditions

The availability and quality of factors of production, such as skilled labor and capital, that influence a nation's competitive advantage.

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Related Industries

Industries that provide inputs and services to one another, fostering innovation and cost advantages in a nation's economy.

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Wassily Leontief

An economist known for the Leontief Paradox, which questioned the Heckscher-Ohlin theory of trade based on U.S. export patterns.

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Paul Samuelson

An economist who critiqued free trade's impact on U.S. wages, particularly concerning offshoring jobs to lower wage countries.

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Outsourcing

The practice of relocating jobs and production to other countries to take advantage of lower labor costs.

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Trade Liberalization

The process of reducing trade barriers to encourage free trade between countries.

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Specialization

The focus of a country on the production of specific goods that it can produce most efficiently, often resulting in enhanced productivity.

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Trade Liberalization Benefits

The long-term advantages of open trade, including economic growth and improved living standards.

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MIT Study by David Autor

Research showing the negative impacts of trade exposure to China on U.S. manufacturing jobs and economic stability.

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Trade Patterns

The regularities observed in international trade, influenced by various factors such as resource availability and production capabilities.

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Technological Advancements

Innovations that can influence labor markets, trade dynamics, and the development of competitive advantages in industries.

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Strategic Trade Policy

Government interventions aimed at enhancing the competitiveness of domestic industries on the global stage.

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Key Takeaways of Trade Theory

Summary points highlighting the importance of comparative advantage, the benefits of free trade, and the ongoing debate about government intervention in trade.

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Vernon’s Product Life Cycle

Theory suggesting products have a life cycle that begins in their home country and moves internationally as they mature.

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Favorable Balance of Trade

A trade situation where a country exports more than it imports, traditionally viewed as a measure of economic strength.

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Industrial Policy

Government policy aimed at promoting certain industries to improve national competitiveness and economic growth.

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Long-Term Welfare Gains

The substantial benefits to a country's economy and society from trade over an extended period, despite short-term challenges.

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Tariffs and Quotas

Instruments of trade policy designed to restrict imports and protect domestic industries.

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Economic Growth Studies

Research findings by economists showing a correlation between open trade policies and higher growth rates in economies.

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Public Policy on Trade

The stance that governments take concerning trade restrictions and liberalization to influence economic performance.

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Specialization and Trade Gains

The increase in both production efficiency and consumption available to countries skilled in specific industrial outputs.

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Michael Porter's Competitive Advantage

Framework that analyzes factors like demand conditions, factor endowments, and rivalry that shape industry competitiveness.

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Porter's Diamond Model

A strategic model that identifies factors determining national competitive advantage in specific industries.