Question

CONTEXT INFORMATION:

Comparative Advantage: As put forward by Ricardo, deals with whether an economic unit (person, region or nation) has an advantage in producing a particular good compared to the other goods that can be produced and compared to the trading opportunities that may be available

* Comparative advantage is when a company can produce goods at a lower opportunity cost than its competitors.

Competitive Advantage: "The effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms." Competitiveness, in this sense, is a statement about differences in market prices. While relative prices among competitors determine the level of exports and market share, it is what makes goods cheaper in one country versus another that is at the crux of the competitiveness issue

* Competitive advantage represents any benefits and advantages that a company may have over its competitors.

1. The characteristics / factors that give rise to comparative advantage (according to readings)

-Land, Labor and Capital

2. "New trade theory" adds to the list of characteristics / factors that give a country a trade advantage. Add these to your list from (b).

-The new trade theory adds opportunity cost and absolute advantage

*QUESTION TO SOLVE:

4. "New" "new trade theory" is really not anything new. It's just a re-assertion that comparative advantage works at small scale (i.e. very low levels of aggregation). However, it does add some additional insight into trade patterns. Outline these additions and add them to your list from (b) & (c).

Answer 1

New trade theory identifies new patterns and characteristics as below :

1. High economies of scale
2. High network effects
3. Differentuated products and hence Monopolistic competition structure
4. Continous innovation cycles
5. High product growth cycle