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Lecture

Lecture Note for MGTA03, Lecture 5

by OC2

Department
Management (MGT)
Course Code
MGTA01H3
Professor
Ingrid L.Stefanovic

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Lecture Notes: Chapter 5(IMPORTANT CHAPTER)
Key Points:
International Trade t Why it Exists
Competitive Advantage t 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
x business activities that involve trade across national borders
x v]v^open_}v}
x 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.
x 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
x Exchange of goods and services/purchasing of things people want that crosses international borders
x 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 ]vZ]}µvÇZZ]o]Ç}µÇ^_}µ(}uZ}o
who make it the best makes us all richer
x Examples of closed economiesÆ North Korea: they tend not to buy American cds, Canadian hockey pucks
and Italian pasta.
x 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 - World's 7th largest exporter (by value)
Canada - World's 7th largest importer (by value)
International trade - 30% of GDP
4 biggest customers, our 4 biggest suppliers:
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Exports to
Imports from
$ billion
$ billion
USA
252
203
Japan
8
14
UK
4
6
Germany
2
6
ÆThese 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.
ÆWe export a disproportion amount of our stuff to America. Heavily reliant on USA
ÆWe 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"Å 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 can't make.
(e.g. Saudi Arabia can't export water, Canada can't 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:
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Absolute 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 concentrate on former, ignore latter.
We choose things to make, and ignore things not to make.
Example:
Wine can be grown in warmer regions of Canada, including much of Southern Ontario.
Cambridge and Oakville have similar climates to Niagara Peninsula.
However, these places make: automobiles
Because we are better to make cars in most cases than we are at making wine.
Suppose in high school we got 93% in grade 12 business, and 92% in grade 12 history, but when you choose to
come to university, you choose to take all business courses because it makes more sense to do one, instead of
splitting your efforts into two programs. (you cant do everything well, so do one thing really well)
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