International Business Economics Essay Example | Topics and Well Written Essays - 1500 words

International Business Economics - move ExampleThe figures show labour cost in hours for producing one unit of goodDavid Ricardo formulated the scheme of relative advantage and argued that even if a one sphere is more productive in some(prenominal) lines of production it would be still profitable to trade. Country A is more productive in two lines of production but it pass on still be profitable to trade with domain B, this is shown by branch stating that country A is more advantaged in production of good X, therefore when wee calculate the comparative advantage country A will specialise in the production of good X and country B will produce good Y and they will gain by trading. (Hardwick, 1997)The Hecksher-ohlin trade stumper states that trade is based on the difference in reckon endowment, a labour rich country will produce and export labour intense good, and it will also import capital intensive goods. A capital rich country will produce and export capital intensive go ods it will also import labour intensive goods.According to the broker equalization theory, if we have a built in bed where factors of production cannot move from one country to another but there is free deed of goods, because the free movement of goods will eventually equalize factor prices. Point Q is the equilibrium point of producing some(prenominal) goods for country one, point P is the point of equilibrium for country two in producing both goods. The movement of goods will cause a lurch in equilibrium points and case price equalization. Equilibrium shift as shown by the arrow.According to the Rybczynski theory an increase in factor of production and the other factor remains constant in a country , then the output of the good using the factor of production intensively increase while the output of the other good will decrease in absolute amount provided factor and output prices remain constant. (Jagdish, 1987) The countries original equilibrium is at point P, afterward in crease in labour the new equilibrium is at point P.According to the Stolper Samuelson theory, he argues that a tariff imposed on import goods causes an income distribution. He argues that a tariff on an import causes interior(prenominal) prices to rise this causes an increase in domestic production as firms emerge to capture the profits caused by the price in this goods. This effect is