BUAD110 Chapter Notes - Chapter 12: North American Free Trade Agreement, Transact, Barter
1 Jun 2018
School
Department
Course
Professor
CH 12
Global Nature of Business
● Businesses depend to an extent on inputs of goods and services from abroad
● Since mid 1990s, service sector in US has become increasingly global as US companies
accelerated their offshore outsourcing strategy to remain competitive
● Increases complexity of work
○ Software development
○ Supply chain management
○ Company or stock analysis
● International trade: import/export of goods and services from or to other countries by
individuals, firms, or other countries
● Free trade regime: system in which exports and imports of goods and services take
place voluntarily without government restrictions and based on a principle of free
markets
International trade benefits consumers:
● Greater amount of choice in the availability of goods and services
● Lower prices
● Higher living standards
Absolute and Comparative Advantage in Trade
● International trade theory encourages countries to specialize in the production of goods
and services that they turn out most efficiently
● Absolute advantage: ability of one country to produce a good/service more efficiently
than another
● Comparative advantage: ability of one country that has an absolute adv in the production
of two or more goods/services to produce one of them relatively more efficiently than the
other
○ Use resources efficiently
○ Increase total output
Barriers to International Trade and Investments
● Foreign direct investment (FDI): an overseas investment in plant and equipment to
produce goods/services for local consumption or for exports
● Protections: the govt practice of imposing trade barrier to shield domestic producers from
international competition
Types of Trade Barriers:
1. Tariffs: taxes on imports
a. Consumer bears cost, raises prices
b. Beneficiary is domestic industry
2. Quotas (quantitative restrictions): limit the amount of imports that can come in
a. Consumer loses, high cost
Document Summary
Businesses depend to an extent on inputs of goods and services from abroad. Since mid 1990s, service sector in us has become increasingly global as us companies accelerated their offshore outsourcing strategy to remain competitive. International trade: import/export of goods and services from or to other countries by individuals, firms, or other countries. Free trade regime: system in which exports and imports of goods and services take place voluntarily without government restrictions and based on a principle of free markets. Greater amount of choice in the availability of goods and services. International trade theory encourages countries to specialize in the production of goods and services that they turn out most efficiently. Absolute advantage: ability of one country to produce a good/service more efficiently than another. Comparative advantage: ability of one country that has an absolute adv in the production of two or more goods/services to produce one of them relatively more efficiently than the other.
