IBUS1101 Lecture Notes - Lecture 5: New Trade Theory, Absolute Advantage, Leontief Paradox
18 Jul 2018
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Document Summary
Theories provide explanations that help us to better understand how the world and especially business works in practice. Evidence is used to decide if theories are supported or rejected. International trade enables firms to keep their manufacturing costs low and sell their desired products at competitive global prices. If countries did not trade with each other, at a minimum, we would not have access to products and services made elsewhere. We would end up paying higher prices for offerings that other nations can produce more economically. We would waste scarce resources by making some products that other countries could produce more efficiently, using fewer resources. Free trade allows consumers to access the products they want at lower costs, which helps increase living standards worldwide. Comparative advantage describes superior features of a nation that provide unique benefits in global competition. These features typically are derived from either natural endowments or deliberate national policies.
