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Trade Theories - Advantages, Disadv. & Limitations Essay

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Below is an essay on "Trade Theories - Advantages, Disadv. & Limitations" from Anti Essays, your source for research papers, essays, and term paper examples.

Comparative Advantage Theory:
Australia is importing goods and services which are comparatively more efficient to produce abroad and are comparatively more desired than abroad and exporting goods and services which are comparatively more efficient to produce than aboard and comparatively more desired abroad. This takes the theory of absolute advantage one step further.

 Reduction in jobs due to production units relocation overseas
 Increased transport costs increases the cost of the product – disadvantage to the customers in many cases
 Increased specialisation may lead to diseconomies of scale
 Comparative advantage measures static advantage but not any dynamic advantage
 Different goods have different elasticity of demand so when global demand may be falling, an economy specializing in producing the product may not raise enough money and may stop producing the product or loss for the investors
 Identical goods may be traded

1) Factor Proportion Theory:
The theory explains that in a two-country, two-factor, and two-commodity framework different countries are endowed with varying proportions of different factors of production. A country with a large labour force will be able to produce the goods at a lower cost using a labour intensive mode of production. Similarly, countries with a large supply of capital will specialize in goods that involve a capital intensive mode of production. After the trade, both the countries will have two types of goods at the least cost (Ohlin, 1967).
 Lots of similar products with updates and low price are entering the market is a challenge for the existing products (i.e. Android Tablet market etc .)
 Companies introduce products in many markets simultaneously to recoup a product’s research and development costs before sales decline and causes’ dumping of the products which reduces local business .
 The theory is challenged by the fact that more companies are operating in...

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