Classical 1
This trade theory believes world wealth is fixed and countries should export more than they import.
Mercantilism
Name two assumptions that classical trade theories make
2 products + 2 goods
Resource mobility
No exchange/ transportation complications
This theory explains how trade patterns change as products mature over time.
Product life cycle
This scholar developed the framework explaining how countries compete
Michael Porter
According to this theory, countries should specialize in products they produce more efficiently than others.
Absolute advantage
This key concept refers to what must be given up when choosing one activity over another.
Opportunity cost
This theory argues governments should support strategic industries through subsidies.
Strategic trade theory
According to _____ theory, _____ export in the new product stage.
product lifecycle; lead innovation nation/ U.S.
This theory says countries can still benefit from trade even if one country is better at producing everything.
Comparative advantage
Major assumption that mercantilism makes but no other theories make
World wealth is fixed
Name one criticism of product life cycle theory
Innovation not always from the U.S.
No stage to stage migration
Germany’s success in high-end automobiles, as we discussed in class, is supported by
national competitive advantage
If Japan can produce high-quality cars more efficiently than any other country, but still imports some cars from South Korea, this is because ______has _____ in ______.
South Korea, comparative advantage, making cars
Similar: Both classical theories/ believe in free trades
Different: Opportunity cost
Modern trade theories are based on the assumption of perfect resource mobility. True or false?
False
Strategic trade theory is the first theory to account for dynamic changes in trade patterns. True or false?
False