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Free trade

refers to 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

New trade theory

the world market can only support a limited number of firms in some industries.


it is in a country's best interest to maintain a trade surplus to export more than it imports.

Zero-ssum game

a situation in which an economic gain by one country results in an economic loss by another.

Absolute advantagAbsolute advantage

a country has an absolute advantage in the production of a product when it is more efficient than any other country at producing it.

Comparative advantage

a country should specialize in the production of those goods that it produces most efficiently and buy the goods that it produces less efficiently from other countries.

Extensions of the Riciardian Model

immobile resources, diminishing returns, dynamic effects, the samuelson critique, and the link between trade and growth.

Constant returns to specialization

the units of resources required to produce a good are assumed to remain constant.

Heckscher-Ohlin theory

comparative advantage reflects difference in national factor endowments countries will export goods that make intense use of those factors that are locally abundant, and import goods that make intense use of factors that are locally scarce.

Product life-cycle theory

as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade.

First mover advantages

the economic and strategic advantages that accrue to many entrants into an industry.

Porter's diamond

factor endowments, demand conditions related and supporting industries, and firm strategy, structure, and rivalry.

Factor endowments

a nation's position in factors of production such as skilled labor or the infrastructure necessary to compete in a given industry.

Demand conditions

the nature of home demand for the industry' product or service.

Related and supporting industries

the presence or absence of supplied industries and related industries that are internationally competitive.

Firm strategy, structure, and rivalry

the conditions governing how companies are created, organized, and managed and the nature of domestic rivalry.

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