Economics

• Globalization


  The process where the economies of different countries are interconnected, and consumers in one country can easily buy products from other countries
• International trade


  The exchange of capital, goods, and services across international borders or territories
• International trade


  • It represents a significant share of gross domestic product (GDP)
  • It is impacted by industrialization, advanced transportation, multinational corporations, offshoring and outsourcing
  • It is a fundamental component of globalization
• Domestic trade


  Trade which takes place within the geographical boundaries of the country
• Differences between domestic and international trade

  • Domestic trade: low transaction cost, less time between production and sale, low transportation cost, encourages small-scale enterprises

  International trade: high quality standards, deals in multiple currencies, high capital investment, many restrictions, heterogeneous customers, difficult to conduct business research, restricted mobility of factors of production
• Comparative advantage


  A country's ability to produce a good at a lower opportunity cost than another country
• Absolute advantage


  The ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time, or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs, than its competitors
• Imports


  Goods and services a business or customer purchases from another country, resulting in an outflow of funds
• Reasons for importing


  High quality, low prices, introducing new products, reducing costs, becoming a leader in the industry
• Exports


  Goods and services that are produced in one country and sold to buyers in another
• Reasons for exporting


  Increase sales and profits, capture global market share
• Pros of exporting


  • Allows for greater economic activity and higher revenue

  May result in production efficiencies and greater innovation

  May reduce operational risk through diversified revenue streams
• Cons of exporting


  • May result in high transportation charges

  May not be achievable by smaller entities due to lack of knowledge and resources

  May result in currency exchange risk

  May increase operational risk due to unknown political or geographical risks
• Importance of exports and imports

  Together they make up a country's balance of trade, which can impact an economy's overall health
• Role and importance of international trade

  • Raises standard of living

  Generates employment opportunities

  Ensures quality and standard goods

  Availability of multiple choices
• Reasons for growing globally

  • Reduce dependence on local market

  Increase chances of success

  Increase productivity and efficiency

  Promote innovation, growth, and economic advantage
• Problems or difficulties in international trade


  • Distance

  Different languages

  Risk in transit

  Intense competition

  Difficulties in payments

  Import and export restrictions

  Transport and communications

  Lack of information about international traders
• Advantages of international trade

  • Optimal use of natural resources

  Availability of all types of goods

  Advantages of large-scale production

  Stability in prices

  Increase in efficiency

  Promotes competition

  Fall of prices

  Speedy industrialization
• Disadvantages of international trade

  • Exhaustion of resources

  Economic dependence

  Political dependence

  Import of harmful goods

  Mis-utilization of natural resources

  Effect on domestic industries
• Tariff


  A tax on imported goods or services, used to raise revenue, reduce consumption of imported goods, and make domestic goods more attractive
• Quota


  Limits the amount of an imported good allowed into the country, decreasing supply and increasing price