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New Trade Theory First Mover Advantage – Learning Curve Effects

Posted by mjmedlock on July 6, 2014 in international economics |

New trade theory shows the importance of first mover advantage. Most people understand first mover advantage from the marketing and economies of scales points of view. However, the learning curve effects of being first are just as important. This is especially true if a firm or an economy have natural cost advantages, but are late […]

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Heckscher-Ohlin Theory & The Leontief Paradox

Posted by mjmedlock on June 20, 2014 in international economics |

Heckscher-Ohlin Theory & The Leontief Paradox Summary of video • Ricardo believed comparative advantage come from differences in labour productivity • Heckscher-Ohlin theory posits that comparative advantage comes from factor endowments • Countries will export goods in which they have relative abundance of factor endowments • In other words, they will export goods which make […]

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Comparative Advantage – International Trade Theories

Posted by mjmedlock on June 11, 2014 in international economics |

Comparative advantage is a trade theory which was developed by David Ricardo in the 18th century. The theories builds Adam Smith’s work to show that countries can benefit from trade. Ricardo’s key insight was that two countries could both benefit from trade even if one of the countries had an absolute advantage in producing all […]

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Absolute Advantage – Trade Theories

Posted by mjmedlock on June 11, 2014 in international economics |

Absolute advantage is a theory of trade that was first developed by Adam Smith. The theory demonstrates that countries can benefit from specializing in producing and trading goods in which they have an absolute advantage. Smith identified the sources of absolute advantage as coming from efficiency in production and/or natural advantages, such as climate or […]

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Mercantilism

Posted by mjmedlock on June 3, 2014 in international economics |

Mercantilism is one of the first, if not the first, trade theories. The idea was popular in the 16th, 17th and 18th centuries. The intellectual argument for mercantilism was lost when Adam Smith introduced the world to the theory of absolute advantage. David Ricardo’s work on comparative advantage further discredited the idea. Unfortunately, despite centuries […]

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Purchasing Power Parity PPP

Posted by mjmedlock on May 24, 2012 in international economics |

Purchasing Power Parity – If we lived in a world of truly efficient markets then the price of a basket of goods would be the same in all countries. However, anyone who has taken a trip abroad knows that this is not the case. In fact prices for identical items vary quite widely across nations. […]

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Inflation rate expectations and exchange rates

Posted by mjmedlock on July 8, 2011 in international economics |

Inflation affects the future purchasing power of any currency. If you have inflation in the Eurozone then €1 today will buy more than €1 in the future. In other words the currency becomes less valuable. If two currencies experience different levels of inflation then their purchasing powers will deviate over time, because one currency loses […]

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Balance of Payments

Posted by mjmedlock on July 7, 2011 in international economics |

The balance of payments equals the transactions between a country and the rest of the world. The balance of payments is made up of two divisions – the current account and the capital account. Transactions that occur due to export and import activity are entered into the current account. Transactions that occur due to the […]

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National Income Accounts

Posted by mjmedlock on July 7, 2011 in international economics |

The national income accounts are called GNP and GDP. They both measure the value of the economy in a year, yet they are slightly different. GDP, gross domestic product, is the total value of all the final* goods and services produced by domestic factors of production and sold in the domestic market in the year […]

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External economies of scale and trade

Posted by mjmedlock on July 6, 2011 in international economics |

Effects of external economies of scale on trade The effects of external economies of scale in international trade may not be entirely beneficial to all countries. A country with a large production in an industry will tend to have lower costs in producing a good. This will lead to positive circle, whereby lower costs will […]

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