Question

Discuss some of the main ideas and theories that expanded the body of knowledge on Trade Theory over the period 1920 to 1995.

Answer 1

Dear Student,

Please find below answer to your question

Abstract

Let us try to focus on the main ideas and importance of Trade Theory which is pave the way during the period of 1920 to 1995.

In Trade Theory exchange is one basis for human interaction. It includes the economics of trading goods, services or things perceived to have value. It is also the basis for the attitude and practice of inter-dependence as a means of human survival.

New trade theory places less emphasis on comparative advantage and relative input costs.

New trade theory states that in the real world, a driving factor behind the trade is giving consumers greater choice of differentiated products.

In this model, the important aspect is brand differentiation.

The major facts of New Trade Theory was as stated below :

1. The ratio of trade to income has increased.
2. Trade has become more concentrated among industrialized countries.
3. Trade among industrialized countries has been largely intraindustry trade.
4. In each country or region, there are three types of goods, a primary good that is tradable and homogeneous, manufactured goods that are tradable and differentiated by the firm that produces them, and a service good that is nontradable and homogeneous within the country where it is produced.
5. The OECD and the rest of the world differ in the endowments of physical capital and human capital held by consumers.

In conclusion,The modern theory of international trade is an extension of the general equilibrium theory of value.

Just as differences in individual capabilities are the cause of exchange between individuals, similarly differences in factor prices is the cause of international trade.

If you like the answer, Kindly up vote

Thank You!!