AFM 131 Chapter 3 Notes - AFM 131 Chapter 3 The Dynamic...

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AFM 131 Chapter 3 The Dynamic Global Market - All companies will want to continuously grow and in order to do that they eventually will expand internationally. - They must make sure that their global operations are making a profit Global Trade: Exchange of goods and services across borders Exporting: Selling goods to another country Importing: Buying goods from another country - Since the global market is so large, there is a lot of competition amongst countries that are trying to sell the same resources. Why is it important to trade with other countries - There is no country that can produce everything or has every resource needed to satisfy their population’s needs - Some countries like japan are very technologically advanced, but do not have many resources. Others like Russia have many resources but not very much tech. - Enhances the standard of living and benefits Canadian economy (exports provide one third of Canadian Jobs) - Free Trade: The movements of goods and services among nations without political or economic barriers such tariffs. Pros and cons of free trade: Pros: - More customers in the global market - Productivity improves when a country produces goods and services that they can produce efficiently - Global competition keeps the prices down which makes imports cheaper and prevents inflation - Free trade inspires innovation for new products and keeps firms competitive - Constant flow of capital gives countries access to foreign investments which keeps interest rates low. Cons: - Domestic workers have a chance of losing their jobs due to low wage options overseas - Workers can get their pay cut when employers threaten to give jobs to overseas - Domestic companies can lose their comparative advantage when competitors build advanced production facilities in low wage countries. Theories of comparative and Absolute Advantage Comparative Advantage Theory : States that a country should sell to other countries the products that they can produce most effectively and efficiently, and buy from other countries that goods that they cannot produce efficiently - Ex. Canada should sell forestry and agricultural products and buy coffee beans because we do not have a comparative advantage. Absolute Advantage: When a country has a monopoly on producing a specific product or is able to produce it more efficiently than anyone else - However global competition causes absolute advantages to fade Importing Goods and Services
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- The Canadian Border of Services Agency inspects imported goods and services to see if they comply with conditions set by federal and provincial government o Is the article prohibited entry into Canada (hate literature) o Does it only allowed in if it has an input permit (clothing, steel, wheat, chicken, firearms o Does it pass all certifications (cars need to pass emissions test, food needs to be checked for sanitary and health purposes) o Does it need to be certified? Some electronics do o Does it comply with provincial rules. Some liquors need authorization before entering
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