1. 2. INTERNATIONAL TRADE THEORIES 2.1. Absolute Advantage According to Adam Smith 1776) in….., a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. If two countries specialize in production of different products (in which each has an absolute advantage) and trade with each other, both countries will have more of both products available to them for consumption. 2.2.
According to Adam Smith (1776) Wealth of Nations, absolute advantage is the ability of a country to produce more than other countries but with less resources. However the theory of comparative advantage holds that a country with an absolute advantage can still gain from specialisation in their most efficient goods. Building on from Ricardo’s theory of comparative advantage, two men; Eli Heckscher, and Bertil Ohlin developed a mathematical model that used a country’s factor endowments as a basis for prediction of production and commerce patterns. This model presented the idea that a country a country abundant
This data collection should allow this study to acquire an acceptable level of trustworthiness, even when taking into considerations some limitations that may occur. Section 1: Introduction Introduction Unemployment as an economic problem exists in each countries and it is often a measure of the health of the economy. It is known as waste of scarce economic resources and as a result it decreases the future growth potential of the country’s economy (Riley, 2005). It is essential to understand the factors which causes the unemployment and its relation and impacts to other economic issues. For instance, of the causes are considered the extreme unemployment benefits, excessive minimum wage and hiring cost, too high real wages level, the disparity between the unemployed labour and job offers on the market in terms of skills and many others reasons (Bell, 2000).
o Economies of scope - achieved by sharing resources common to completely different merchandise. Unremarkably cited as "synergies." o Augmented market power (over suppliers and downstream channel members) o Reduction within the price of international trade by operational factories in foreign markets. Sometimes advantages will be gained through client perceptions of linkages between merchandise. For instance, in some cases natural action will be achieved by mistreatment identical name to market multiple merchandises.
In order to make standard free-trade theory come out right, it is therefore necessary to show that international competition is always beneﬁcial. This is the real thrust of standard free-trade theory and the real foundation of neoliberalism. Firstly, if trade between any two nations leads to imbalances between exports and imports, it is necessary that these provoke compensating relative price changes. This means that the value of the goods sold abroad by its exporters is less than the value of the goods sold domestically by its importers. For this imbalance to be automatically corrected, it is necessary that exports become cheaper to foreigners who would then presumably buy more and that imports become more expensive to domestic buyers who would then presumably buy less.
Dependency theory is based around the occurrence of wealthier states benefitting economically from poorer states. Dependency theory argues against the notion that non-developed nations are created and evolve in the same way as developed nations, when in reality, they all have a different history, culture and way of growing. It brings forth the notion that there is a common course for development, and that the developing nations will just follow this path. Dependency theory highlights how economic development, although it might involve develop and non-developed nations, does not mean that economic prosperity is inevitable. Dependency theory highlights that poorer nations are able to be taken advantage of, for they have the natural resources, and large populations which are used for cheap labor, but lack the ability to establish systems that benefit economic prosperity.
(David Ricardo, Theory of Free International Trade). The neoclassical economists believed that in a competitive market, prices would direct consumers and cause the most efficient allocation of resources, which will maximize society’s income. This believe had developed the pure theory of trade and this also present Adam Smith’s theory in the invisible hand of the market and competition. Also, it shows the benefits of laissez-faire policy in relation to international exchange. The neoclassical economists strongly agree that the comparative advantage theory by David Ricardo is much more relevant to international trade then the absolute advantage by Adam Smiths.
• Threat of substitute products or services: Substitute products refer to products in other industries. “To an economist, a threat of substitutes exists when a product 's demand is affected by the price change of a substituted product.” (Substitutes - PlanningSkills.COM. (n.d.).) Therefore, when a product has more substitutes available the demand becomes more elastic and the threat of substitute products becomes higher. For UMUC Haircuts this means that if the substitution is easy and viable, then this weakens its power for competitive advantage.
Many companies respond to risks that have a low impact in supply chains and tend to overlook the high-impact and low-likelihood risks (Chopra & Sodhi, 2004). An understanding needs to be obtained by managers between the connection and variety of the supply chain risks to develop an effective risk response strategy. Hauser (2003) recommends that due to today’s complex environment, adjusting and understanding risk will result in an improvement in financial performance and competitive advantage for an organisation. Hise (1995) states that the objective of supply chains is profit maximisation by finding a balance between productivity (efficiency) and profitability (effectiveness) (Mentzer & Firman, 1994) to shift raw material and products between countries in a timely manner ( Bowersox & Calantone, 1998a) resulting in profitability of supply chains as a whole ( Manuj & Mentzer, 2008). Managers need to consider the different factors that create uncertainties and risks as a global supply chain have numerous delay points, greater uncertainties, and hence the need for greater coordination, communication and monitoring (Manuj & Mentzer,
Dumping is a predatory pricing technique that can be a cause of concern for domestic and local firms because foreign competitors unload their excess production at very minimal prices in international markets. If a good is sold as export for less than their original value then it is considered a dumped good. In the short-run, domestic consumers benefit from this practice because of the lower prices for foreign goods but in the longer-run, it proves very harmful for domestic industries who are forced out of business because of the persistent undercutting of domestic prices by a foreign company who then establishes itself as a monopoly power in that sector. When there is no competition left, the firm will increase the prices to exploit the