International Business and trade subject
Difference between vertical and horizontal foreign direct exchange decisions
Horizontal foreign direct exchange decisions occur when the multinational/multi-plant takes similar production activities in more than one country. In contrast, vertical foreign direct exchange decisions occur when the multinational fragments the production process internationally /globally. i.e., firms locate different stages of production in different countries.
Significance of intra-industry trade
Intra-industry trade is a type of trade where a given country exports and imports similar products belonging to the same industry. This type of trade is of great significance to a country’s economy since it stimulates innovation and exploitation of economies of scale. It also allows workers to focus on very particular parts of the value chain.
Theory of imperfect competition
Imperfect competition is a competitive market situation where there are many sellers, each selling different commodities. In this type of competition, product differentiation is a dominant characteristic. There are free entry and exit to the market, implying that any agent can enter and leave the market if he finds it profitable.
Monopolistic competition is a type of competition where there are one dominant seller and many buyers. The seller takes full responsibility for supplying a product without any competition. On the other hand, oligopolistic competition is a competition where only a few sellers of products can be differentiated but not to a great extent; each of the sellers has a high percentage of the market, but ignorance of other sellers’ actions is limited.
Relationship between external economies and international trade
External economies of scale relate to international trade in that external economies act as a basis when gauging production. Increasing returns to scale economies aim to produce more output at a relatively low cost in international trade.
Theory of external economies
The concept of external economies comes about when a whole industry grows bigger, and firms benefit from low average production costs.
Concept of economies of scale
Economies of scale refer to the cost advantage experienced by a firm when it increases its output .it also leads to a drop in average variability of costs. Firms can achieve economies of scale by increasing production and lowering production costs since the costs are spread over an extensive number of goods.