In a short essay, discuss the theory of mercantilism, and discuss favorable and unfavorablebalances of trade as they apply to international business.
Question
In a short essay, discuss the theory of mercantilism, and discuss favorable and unfavorablebalances of trade as they apply to international business.
Solution
Mercantilism is an economic theory that emerged in the 16th century and dominated European economic thought until the 18th century. It is based on the belief that a nation's wealth and power are determined by its accumulation of precious metals, such as gold and silver. According to mercantilism, a country should strive to have a favorable balance of trade, meaning that it should export more goods than it imports.
The theory of mercantilism emphasizes the importance of protectionist policies, such as tariffs and quotas, to promote domestic industries and limit imports. By restricting imports, a country can reduce its trade deficit and increase its stock of precious metals. This approach was seen as a way to ensure economic self-sufficiency and maintain a strong military.
Favorable balance of trade refers to a situation where a country's exports exceed its imports. This is seen as beneficial because it leads to an inflow of precious metals, which are considered a measure of wealth. A favorable balance of trade is believed to strengthen a country's economy, increase employment, and enhance its overall power and influence.
On the other hand, an unfavorable balance of trade occurs when a country imports more than it exports. This can lead to an outflow of precious metals, which is seen as detrimental to a nation's economic well-being. An unfavorable balance of trade is often associated with trade deficits, which can result in a loss of jobs, reduced domestic production, and a decrease in a country's economic strength.
In the context of international business, the theory of mercantilism has several implications. Countries that adhere to mercantilist principles may implement protectionist measures, such as tariffs and quotas, to promote domestic industries and limit imports. This can create barriers to international trade and hinder the growth of global commerce.
Furthermore, the pursuit of a favorable balance of trade can lead to trade imbalances between countries. Some countries may have a surplus of exports, while others have a deficit. This can create tensions and disputes in international trade relations, as countries seek to protect their domestic industries and maintain a favorable balance of trade.
In conclusion, mercantilism is an economic theory that emphasizes the importance of a favorable balance of trade and the accumulation of precious metals. While it was influential in shaping economic policies in the past, many of its principles are now considered outdated. Today, countries generally strive for balanced and mutually beneficial trade relationships, rather than focusing solely on trade surpluses or deficits.
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Required informationSkip to questionIndia's Comparative Advantage This activity is important because many managers need to consider international trade and its impact on their business. Nations and businesses engage in international trade to obtain raw materials and goods that are otherwise unavailable to them or available elsewhere at a lower price than that at which they themselves can produce. A nation, or individuals and organizations from a nation, sells surplus materials and goods to acquire funds to buy goods, services, and ideas that its people need. Which goods and services a nation sells depends on what resources it has available. The goal of this exercise is to demonstrate your understanding of international trade as it relates to one major country, India. Read the case below and answer the questions that follow. Part I: India, with a population of 1.35 billion, is the fastest growing population in the world and the second largest population in the world (China is first). Even though India’s Gross Domestic Product (GDP) ranking puts it outside of the Top 5 worldwide (behind countries like the United States, China, Japan, Germany, and the United Kingdom), the growth rate of India’s GDP averages above 6%, surpassing these other countries. Still, the average salary in India is less than $2000 a year, and India’s average annual income is below more than 50 other countries. In addition, there is stark contrast in India between affluent cities and impoverished areas, with the richest 10 percent of India controlling 80 percent of the nation’s wealth. In contrast, about 60 percent of India’s population lives on about $3 per day, living in villages and unable to afford luxuries like refrigeration and running water. Part II: India's road to success has been and will be extremely different from the organized route that China has taken to expand its economy. China’s all-powerful government is responsible for the country’s growth, while India has a large number of entrepreneurs who are determined and willing to do what it takes to make money. Indian companies are growing at remarkable annual rates of 15 to 25 percent. However, Indian consumers are also contributing to this growth. Personal consumption accounts for about 60 percent of India’s gross domestic product, less than 10 percent behind the United States, which has one of the highest personal consumption rates. Part III: American companies have moved their operations to India to take advantage of inexpensive labor, but India boasts a growing number of its own successful blue-chip companies, such as Infosys and Tata Consultancy. Infosys, for example, designs and maintains software for almost the majority of Fortune 500 companies. India’s manufacturing sector has also become a global force. Once sluggish and inefficient, the manufacturing industry has benefited from recent economic reforms as well as a plentiful supply of engineering talent and inexpensive labor. Above all, what appears to be driving India's growth is an enthusiasm to succeed. This enthusiasm may be attributed to India’s emergence as an independent society ready for change—and what a change! Which of the following best represents a training that would need to occur in order to help someone doing business in India overcome cultural barriers?Multiple Choicea training on gender roles and taboosa debriefing on trade and employment lawa training on financial exchangea training on legal issues surrounding selection and assessmenta training on tariffs for exporting
The term "mercantilism" can best be defined as:Question 5Select one:a.An economic system in which there is private ownership (as opposed to state ownership) and where there is an impetus to produce profit, and thereby wealth.b.When children tend to enter the same or similar occupation as their parents.c.An economic policy based on national policies of accumulating silver and gold by controlling markets with colonies and other countries through taxes and customs charges.d.An economic system in which there is government ownership (often referred to as "state run") of goods and their production, with an impetus to share work and wealth equally among the members of a society.
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