ADMS 1010 Tutor 3.docx

7 Pages

Administrative Studies
Course Code
ADMS 1010
Barry O' Brien

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International Trade 1. The exchange of goods and services between or among countries 2. Enables a country to specialize in those goods it can produce most efficiently 3. Enlarges the potential market for the good of an economy 4. Major force of economic relations among countries 5. It is an extension of governmental policy 6. Reason for trade Reasons for Trade 1. Resources are not completely distributed across the globe 2. The climate and terrain of state 3. The skill of its labour force 4. Advantages of specialization National Policy 1. The settlement of the west 2. The building of the railway 3. The creation of high tariffs on import Implications of National Policy  Foreign firms importing goods into Canada o Disadvantaged by the tariff o Free to invest in Canada and establish subsidiaries  Foreign firms able to open resources frontiers before Canadian firms  National policy made Canadian industries very attractive investments  Concentration of ownership and market power. The Ricardian model  Two British economists, Adam Smith and David Ricardo  Adam Smith advanced the theory of absolute advantage of nations, while Ricardo developed the comparative advantage of factor of production. It is based on the nations will specialize in those areas that best suited to their productive capabilities and will then exchange with other nations. In this model it can be shown that both parties gain from trade, by specializing in those areas within which they have a comparative adv. nations can produce more goods and services than they could without exchange the surplus production created can then be uses to exchange with other nations, for goods and services in which they have specialized.  It suggests that CA is based upon nations factor productivity. Rickards approach to measure Productivity, Richard’s approach measured productivity in terms of one factor: labor  An examination of unit labor costs and trade data shows that the R.Model is a relatively predictor of a country’s capacity to produce goods and services and exchange them through international trade Importance of international trade  Some countries export only to expand their domestic market or to aid economically sectors within the domestic economy.  Other countries depends on trade for a large part of their national income and to supply goods for domestic consumption Mercantilism – the goals of trade  To maximize its export to other nations while limiting imports and collect as much wealth as possible.  The assumption was that trade is a zero-sum game where there is always winners and losers. Economic Benefits of Comparative Advantage  International trade leads to more efficient and increased world production (best use of resources)  It result the expansion of markets (as specialization occurs, the need to trade with other nations to have access to certain products increases)  It leads to growth in domestic employment (specialization leads to greater output)  It simulates the modernization and innovation of domestic companies (in order to keep your CA over others, you need to stay at the forefront of technological and innovative advances or risk losing your position. Restrictions on International Trade  Canada dependence on natural resources  How should Canada determine the price of its Nat Res.?  Weighing increase current income and consumption against the possibility of lower real income and consumption in the future of its cost increase  Opposition to export sales of natural resources. Indirect Restrictions on Export Policies of diversification on industrial products  The goal is to reduce dependence on income from exports if there is fluctuations in export sales of commodities  To maintain a basic self sufficiency in essential commodities to avoid dependence on other countries  National security concerns Restriction on imports 1. A tariff or import duty is a tax 2. An “ad valorem” tariff is a tax as a percentage of the price of a good 3. A license fee is required to import specific a good 4. Quotations are limitation on the quantity of a good which can be imported 5. Combined with an import license so that the importer is paying a fee to import a specific amount 6. More stringent restrictions - embargo, sanction, boycott. Protectionism – Gov’t actions and policy that restrict or restrain international trade often done with the intent of protecting local business and jobs from foreign competition. Even in the most right wing of companies gov’t will inevitably choose to intervene to protect what they perceive is in the nations interest. It also refers to gov’t policy that protects its produces from foreign competition. How does protectionism work? There should be a degree of intervention and some persuasion and manipulation of the tax system. The awarding of gov’t contracts, granting subsidies, and tax concession policies. Trade Restrictions as Protectionism 1. To protect foreign industry from foreign competition 2. Tariff imposed by the importing country when a good crosses an international boundary 3. Non-Tariff barriers refer to any action other than a tariff that restrict international trade for ex. Quota, licensing, and regulations. Theses can be worse than tariff barriers. Effects of a protective tariff against Canada  Producer depend on protection cannot normally export since their costs are often above world prices.  We depend almost entirely on domestic market. Economic Losses from tariff often exceeds their benefits  It leads to the substitution of higher costs with domestic products and lower cost imports  Increase in economic rents, which is economic rents, are “excess returns” above “normal levels” that take play in competitive markets. Stable Thesis of Harold Innis 1. Asserted the origins and purposes of the federal gov’t can be understood in terms of an economic territory dependence upon the exports of certain stables 2. To make it commercially feasible production entail heavy public expenditures on railways and canals 3. The gov’t filled an important vacuum by being the substitute for a private enterprise in the building and developing Canada. 4. Thomas Hockin later argues that the Canadian gov’t was given an active roll in national development and fostering and protecting of certain cultural and economic characteristics. Privatization Reasons for privatization. 1. Efficiency 2. Reducing the public sector borrowing requirements 3. Reducing gov’t involvement in enterprise decision making 4. Encouraging employee share ownership 5. Gain political advantage 6. Easing problem of public sector by determination 7. Expand share of ownership Make gov’t more flexible and compete against a group of market place British North American ACT  Establish the union  Establish courts  Allocate the power between the confederation and the provinces  Recognizes two official languages Banking  A stable banking system is an absolute requirement for a business  The stern diamond has an efficient financial system as its first base  The bank act of 1871 created a financially sound currency, an absolute requirement for a successful economy, and created a nationally regulated banking system Inflation – general rise in prices Measure by index with current basket of goods Excess growth of money supply will create inflation The rise of goods and services in the economy over a period of time. If the cost of goods goes up faster than the rise in wages the consumers buying power is less than it was previously An excessive growth in
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