Lecture Note for MGTA03, Lecture 5

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University of Toronto Scarborough
Management (MGT)
Ingrid L.Stefanovic

Lecture Notes: Chapter 5(IMPORTANT CHAPTER) Key Points: International Trade J Why it Exists Competitive Advantage J which products to import, export Exports and imports Balance of Trade Barriers- tariffs, quotas, Embargoes, Subsidies International Business:buying from or selling to customers outside of Canada N business activities that involve trade across national borders N L]ZL^open_ }L}K N We are open to the idea of international trade o We like the idea of buying things from Italy, Mexico, Bangladesh o We like to sell our stuff to the Brazilians, British and USA. N We are open to free flow of goods/services across borders o Our airports are open, we like the idea of Italian pasta, and French wine and German sports car coming into this country N Exchange of goods and services/purchasing of things people want that crosses international borders N Because: We believe it raises living standards o Folks who live in other countries: they make things cheaply and well that we do not make as efficiently, so it is our belief ]LZ]Z }LZZ]o]}^Z_} Z}KZ}o who make it the best makes us all richer N Examples of closed economies North Korea: they tend not to buy American cds, Canadian hockey pucks and Italian pasta. N India to some extent is a partially closed economy. It is more difficult to sell things to India because they have immense population and resources. International Trade Important to Canada Canada - Worlds 7th largest exporter (by value) Canada - Worlds 7th largest importer (by value) International trade - 30% of GDP 4 biggest customers, our 4 biggest suppliers: www.notesolution.com Exports to Imports from $ billion $ billion USA 252 203 Japan 8 14 UK 4 6 Germany 2 6 These are our top four suppliers and buyers in order . We are very dependent on the USA for our international trade. We are overly dependent on trade with USA. The United States are like 90% of our trade. We export a disproportion amount of our stuff to America. Heavily reliant on USA We should try to be better with trading with the Chinese, British, etc etc Why Do We Import and Export? Why countries choose to import/export certain products and What products countries choose to import/export is explained through theory of "Competitive Advantage" KNOW THIS FOR EXAM(SHORT ANSWER QUESTION, KNOW THE THEORY OF THIS) Competitive Advantage No country can make everything plentifully, cheaply and well. Basic Idea: We make some products faster, cheaper, better than other products. Faster, cheaper, easier, to make some things here. Faster, cheaper, easier to get some things from elsewhere. Some things you just cantmake. (e.g. Saudi Arabia cant export water, Canada cant export pineapples). No country or business has an infinite supply of factors of production and resources No country can do everything. Even USA does not have infinite supply of people, capital.(factors of production) No countries have all resources in world. USA are in the midst of talking with Canada to import Canadian water. Competitive Advantage comes from two sources: www.notesolution.comAbsolute advantage Comparative advantage Absolute(black & white) advantage: Some countries have access to resources that some countries do not have access to. Because of unusual or unique geography, climate, location, population, natural resources or other factors, a nation has an ability to produce goods that other countries simply cannot. Example: Saudi Arabia has oil in the ground Italy, Fiji, Demark do not, therefore they need to get it from somewhere else. Example: Canada has millions of acres of wheat Luxembourg, Japan, Barbados do n Comparative Advantage: A matter of specialisation or concentration. A nation chooses to produce some products more cheaply or better than other products it could make, but not as well. So, we concentrat
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