TAILIEUCHUNG - Lecture International business (9e): Chapter 6 - Charles W.L. Hill

Chapter 6 - International trade theory. In this chapter students will be able to: Understand why nations trade with each other, summarize the different theories explaining trade flows between nations, recognize why many economists believe that unrestricted free trade between nations will raise the economic welfare of countries that participate in a free trade system, | International Business 9e By Charles . Hill McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 6 International Trade Theory Why Is Free Trade Beneficial? Free trade - a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country trade theory shows why it is beneficial for a country to engage in international trade even for products it is able to produce for itself LO1: Understand why nations trade with each other. Why Is Free Trade Beneficial? International trade allows a country to specialize in the manufacture and export of products and services that it can produce efficiently import products and services that can be produced more efficiently in other countries limits on imports may be beneficial to producers, but not beneficial for consumers What Is Mercantilism? Mercantilism (mid-16th century) suggests that it is in a country’s best interest to maintain a trade surplus -to export more than it imports advocates government intervention to achieve a surplus in the balance of trade Mercantilism views trade as a zero-sum game one in which a gain by one country results in a loss by another LO2: Summarize the different theories explaining trade flows between nations. What Is Smith’s Theory Of Absolute Advantage? Adam Smith (1776) argued that a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it countries should specialize in the production of goods for which they have an absolute advantage and then trade these goods for goods produced by other countries LO2: Summarize the different theories explaining trade flows between nations. What Is Ricardo’s Theory Of Comparative Advantage? David Ricardo asked what happens when one country has an absolute advantage in the production of all goods The theory of comparative .

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