International finance assessment Essay Example | Topics and Well Written Essays - 500 words

International finance assessment - Essay Example A notable weakness of the theory emanates from the counter-intuitive nature of the comparative advantage principle. This means that the assumptions made by the theory defy logic. The other weakness of the comparative advantage theoretical assumptions is that they can be confused with the assumptions made by the absolute advantage theory. As such, people may contradict the assumptions made by this theory with the assumptions made by the absolute advantage approach (Carbaugh, 2011). In most cases, Multinational Corporations tend to stand out as more competitive than domestic firms. This emanates from the fact that these firms deal with a diverse variety of goods and services, thus motivating people to purchase from them. In addition, multinational corporations employ modern forms of technology, which enable them to meet the needs of the customers. Large scale production by multinational corporations can also be regarded as another factor that contributes to their competitiveness. With mass production, these firms can meet the market demands of the customers since they produce in large quantities, thus reducing the shortages in the market. The other reason why MNEs thrive at the expense of local firms is because they sell goods at a lower price than domestic firms. Since they do not incur high production costs (because they use advanced technology), MNEs can price goods at an affordable price (Carbaugh, 2011). There are various forms of comparative advantage, which can be regarded as different based on a number of factors. One of the forms of comparative advantage includes absolute advantage, which states that one of the countries taking part in international trade has the capacity to have a higher output in every unit produced than the other country. For example, one country can have high output of coffee in each of the units of the product that it produces. Based on comparative advantage, when one of the countries has a