Master of Business Administration (MBA) — International Business

Welcome to Master of Business Administration (MBA) — International Business. Follow International Trade Theories: Mercantilism, Comparative Advantage, Heckscher–Ohlin and Porter's Diamond, then practise in the learning system. Sign in and use the study header to open your authorised course. Select this published lesson. Start Course Tutor with Auto audio on: it teaches continuously, answers a typed question, then resumes. Factor conditions — especially advanced and specialised factors such as skilled labour and research infrastructure, rather than basic endowments. Demand conditions — sophisticated, demanding home customers who push firms to innovate. Problem. Labour hours needed per unit: : India; Cloth: 2 hours; Wheat: 4 hours. : Country Z; Cloth: 6 hours; Wheat: 8 hours. (a) Who has absolute advantage? (b) Who has comparative advantage in each good? (c) Show that a terms of trade of 1 cloth = 0.6 wheat benefits both. (a) India needs fewer hours for both goods, so India has absolute advantage in both. (b) Opportunity cost of 1 cloth: India = 2 divided by 4 = 0.5 wheat; Z = 6 divided by 8 = 0.75 wheat. India's is lower, so India has comparative advantage in cloth. Opportunity cost of 1 wheat: India = 4 divided by 2 = 2 cloth; Z = 8 divided by 6 = 1.33 cloth. Z's is lower, so Z has comparative advantage in wheat. (c) The ratio 0.6 wheat per cloth lies between 0.5 and 0.75, so both should gain. India: producing 1 wheat at home costs 4 hours. Through trade, 1 wheat costs 1 divided by 0.6 = 1.667 cloth, which takes 1.667 times 2 = 3.33 hours. Saving: 4 − 3.33 = 0.67 hours per unit of wheat. Z: producing 1 cloth at home costs 6 hours. Through trade, 1 cloth costs 0.6 wheat, which takes 0.6 times 8 = 4.8 hours. Saving: 6 − 4.8 = 1.2 hours per unit of cloth. Check. Recomputing India's cost via hours per wheat-equivalent: 1 cloth = 2 hours buys 0.6 wheat, so 1 wheat = 2 divided by 0.6 = 3.33 hours — same answer. For Z: 1 wheat = 8 hours buys 1 divided by 0.6 = 1.667 cloth, so 1 cloth = 8 divided by 1.667 = 4.8 hours — same answer. Both gain, confirming Ricardo's point that the less efficient country still benefits. Case application — Porter's diamond. Explain the growth of an Indian IT-services cluster. Factor conditions: a large pool of English-speaking engineering graduates (an advanced, specialised factor). Demand conditions: initially weak at home, so demanding foreign clients played this role. Related and supporting industries: training institutes, telecom connectivity, specialised recruitment. Rivalry: intense competition among many firms in the same cities pushed quality and process certification. Government: policy support for software exports and technology parks. The analysis shows that the advantage is created, not inherited — Porter's central claim. Ask Course Tutor to explain this step: India: producing 1 wheat at home costs 4 hours. Say what you tried. Pause and try this source task. If Country P needs 3 hours for a phone and 6 hours for a tablet, what is the opportunity cost of one phone? The source answer is: 3 divided by 6 = 0.5 tablet. Compare your method and result, correct an error, then continue. Use Stop to end Course Tutor.