International Trade

INBM 301 International Trade

Q1-Fun and food is a restaurant chain. They want to start its operations globally. What aspects they should consider before entering in international market. What different entry modes Fun and food restaurant use?

A1-

Q2- Explain various international trade theories.

A2- The various International trade theories are:-

1. Mercantilism

• 1630, Thomas Mun :“…to increase our wealth…sell more to strangers yearly than we consume of theirs in value”

2. Absolute Advantage

• 1776, Adam Smith.  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

3. Comparative Advantage

• 1817, David Ricardo - Even if one country has an absolute advantage in producing two products over another country, trading with that other country will still yield more output for both countries than if the more efficient producer did everything for themselves.

• The country with the absolute advantage in producing both products would still produce both products, but less of the one they would trade for, allowing them to essentially allocate more resources to producing the product that they’re comparatively most efficient at producing

• Assumes many things:

-Only 2 countries and 2 goods

- No transportation costs

-No price differences for resources in both countries

-Resources can move freely from producing one product to producing another product

-Constant returns to scale

-Fixed stock of resources

-Free trade does not affect production efficiency

-No effects of trade on income distribution within a country

• There are...