The illustrative cases of Airbus and Boeing and their phenomenal growth in the global markets is reflective of the following trade theory Group of answer choicesNew Trade TheoryMercantilismTheory of Absolute AdvantagePorter's Diamond Framework
Question
The illustrative cases of Airbus and Boeing and their phenomenal growth in the global markets is reflective of the following trade theory Group of answer choicesNew Trade TheoryMercantilismTheory of Absolute AdvantagePorter's Diamond Framework
Solution 1
The illustrative cases of Airbus and Boeing and their phenomenal growth in the global markets can be best explained by the New Trade Theory.
The New Trade Theory, developed by economists Paul Krugman and Elhanan Helpman, suggests that it is advantageous for a company to engage in international trade even if a country does not have an absolute advantage in the production of a particular good or service. This theory emphasizes the role of economies of scale and network effects in global trade.
In the case of Airbus and Boeing, both companies have been able to achieve significant economies of scale, which has allowed them to reduce costs and increase their competitiveness in the global market. Additionally, both companies have benefited from network effects, as the more widespread their aircraft become, the more valuable they are to customers due to factors such as availability of
Solution 2
The illustrative cases of Airbus and Boeing and their phenomenal growth in the global markets is reflective of the New Trade Theory.
The New Trade Theory explains how it is possible for a country to gain from trade even if it has an absolute disadvantage with respect to all goods with another country, or even if it has an absolute advantage with respect to all goods. It emphasizes the role of economies of scale (cost advantages that enterprises obtain due to their scale of operation) and network effects (the value of a product or service increases as its number of users expands) in international trade.
Airbus and Boeing, both are dominant players in the global aircraft manufacturing industry. They have been able to achieve economies of scale due to their large scale of operations. They also benefit from network effects as the more airlines use their aircraft, the more valuable their aircraft become to other airlines. This is because a larger network of airlines using the same type of aircraft can lead to cost savings in terms of maintenance, spare parts, pilot training, etc.
Therefore, the success of Airbus and Boeing in the global markets can be explained by the New Trade Theory.
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