Essay about The New Trade Theory

Economies of scale: Large companies can produce products at a much lower cost than small ones because the cost per unit drops as the volume of output rises

Economic: Globalization of the pharmaceutical industry is an exciting opportunity to have research and development done at cheaper prices in other countries. However, this could be a double edged sword for companies because it is easy for other countries, such as India, to produce generic versions of the drug in bulk.

Neoclassical Trade Theory is a theory that focuses on how the perception of efficacy or usefulness of products affects trade market forces such as supply and demand. The Heckscher-Ohlin Trade theory explains that countries typically export the things they are best at producing. This theory is used as a way to evaluate a trade deal and the equilibrium that exist between two countries that have different specialties and abundant resources. The Heckscher-Ohlin Trade theory essentially demonstrates a theory for how a country should function based on the most abundant resource it has available, in a world where resources are imbalanced from country to country (Gandolfo, G. 2013). This theory suggest that each country has a resource in which they can produce goods or services from, better than any other country, and puts an emphasis on the amount and cost of labor it takes to produce that resource. Some economist may even agree with the statement that “For a world in which international trade would be based only on the differences featured in the Heckscher–Ohlin theory, the shift from no trade to free trade is like a zero-sum game” (Pugel, 2015), however, I do not. In this assignment I read a few sources that discuss theories of international trade, and they may prove reason as to why Pugel’s statement may not be exactly true.

Improvements in health care and life sciences are an important source of gains in health and longevity globally. The development of innovative pharmaceutical products plays a critical role in ensuring these continued gains. To encourage the continued development of new drugs, economic incentives are essential. These incentives are principally provided through direct and indirect government funding, intellectual property laws, and other policies that favor innovation. Without such incentives, private corporations, which bring to market the vast majority of new drugs, would be less able to assume the risks and costs necessary to continue their research and development (R&D). In the United States, government action has focused on creating the environment that would best encourage further innovation and yield a constant flow of new and innovative medicines to the market. The goal has been to ensure that consumers would benefit both from technological breakthroughs and the competition that further innovation generates. The United States also relies on a strong generic pharmaceutical industry to create added competitive pressure to lower drug prices. Recent action by the Administration and Congress has accelerated the flow of generic medicines to the market for precisely that reason. By contrast, in the Organization for Economic Cooperation and

U.S. based companies hold rights to most of the world’s rights on new medicines and holds thousands of new products currently being developed. As of 2012, the industry helps support almost 3.4 million jobs in the U.S. economy. It is also one of the most heavily R&D based industries in the world. In the United States, the environment for pharmaceuticals is much friendlier than other countries around the world in terms of pricing ability and regulations. Both the Pharmaceutical and Biotechnology industries have experienced significant growth in the past year with year-over-year increases of 13.02% and 34.69% respectively. It is an even more striking when looking at the past five years considering both have beat out the S&P 500 with pharmaceuticals increasing an additional 31.44% and the biotechnology sector besting an astonishing 269.3% more return than the

Globalization has been in existence for the past hundreds of years; it has exercised control over the transformation and development of the trade world as we know it. It has impacted trade in a good way, and overall as a positive force. Globalization has given rise to the job market and increased trades of many products. Without trade, the world would not have been able to further its economy as it has. When deciphering between what could be seen as a positive and negative force, different definitions come to mind. When I think of a positive force as it comes to the economy, I think of an upward moving building block as the world went through globalization by increasing the worlds organization of economies. Resulting in the growth of trade of goods, services, and international capital. This was also accompanied by a new spread of technologies and global international trade.

Spending $3 billion a year on research, Merck enjoyed a decade long span of unveiling new drugs on a regular basis (Lawrence & Weber, 2014). This was a major contributing factor to Merck’s ranking as the third largest pharmaceutical company in the world (Lawrence & Weber, 2014). In the 1980’s, 80% of the drug companies’ growth was attributed to drugs that addressed chronic, nonfatal conditions that affected a large population (Lawrence & Weber, 2014). These drugs, often referred to as blockbuster drugs, were usually taken by patients with health insurance which insured healthy sales and profits for the drug companies (Lawrence & Weber, 2014). Merck was in stiff competition with other drug manufacturers to create the next big blockbuster drug that would drive up profits. Coupled with that pressure was the amount of time involved in

growth trends in specialty. Such context is critical to answering this question: which are the areas that Pharma

Nowadays, companies want to expand as much as possible. This is shown by the increases in the number of product lines, and the expansion to new geographical markets. However, does it really make the company better off to expand? In other words, is a bigger company a better company? The concept of economies of scale plays an important role in answering this question. Economies of scale is “the effect on average costs of production of different rates of output, per unit of time, of a given commodity, when all possible adaptations have been carried out to make production at each scale as efficient as possible” (Silberston, 1972). Consequently, the higher the output, the lower average costs per product. However, does this reduction in average costs make the company a better company?

In a matter of three years, ranging from 1839 to 1842, China and Britain go head to head in all out battle for the use of drugs, and a favorable balance of trade. This certain drug is called Opium. Opium has a very addictive ingredient in it that China was very observant about at their time. China was so observant that their emperor decided to expose the Western Countries, and China decided to ban all use of Opium in their country. Although a problem arose, Britain needed a favorable amount of trade, and China at the time had most of Britain's silver that Britain was looking to grasp out of China’s own jaws. The following events took place during the Qing Dynasty.

Before the 1900s Latin America began to strengthen their economy by means of industrialization. In doing this they developing railroads, roads, and port facilities which increased trade and profits. Because of these advancements, they were able to participate in the world trade markets. Some larger countries such as Brazil and Argentina grew exponentially by trading there products (coffee and wheat). After the World Wars, trade declined in world markets and Latin American governments found it necessary to practice Import Substitution Industrialization (ISI). ISI is the creation of domestic industry to provide products previously imported. ISI was Latin America’s principle method in achieving economic growth. Though the ISI was not successful in Latin America, it was victorious in Brazil- raising Brazil from a third-world country to first world status.

2. Suppose that US market demand and supply for cloth are given, respectively, by the following algebraic equations: P = 8 – ½Q and P = 2 + ¼Q (P is given in dollars and Q in tons).

Mergers and acquisitions in the pharmaceutical sector since the last 10years to cope with the mutations of this sector.

Economies of scale are usually considered with respect to the production activity and the ability to perform the manufacturing process differently and more efficiently at large volumes, thus resulting in a cost advantage. However, another important source is the ability to amortize (largely fixed) costs of other activities, such as

Throughout the centuries of economic theories, there have always been major disagreements amongst economists. Each believing their theory provides a better explanation or solution to the economic situations the globe finds itself in. The anomaly to these disagreements is the theory, first introduced by Adam Smith, which states that international free trade is in the best interest of the trading countries and the ever globalizing world as a whole. This essay shall compare the views of the great economists; namely Adam Smith and David Ricardo, on their economic theories of international free trade.