Fin 6644 Essay

According to Colander, "The reason two countries trade is that trade can make both countries better off" (2004, p. 416). In economics, the theory of comparative advantage clarifies why it can be advantageous for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. What matters is not the absolute cost of production, but instead, the ratio between how easily the two countries can produce different kinds of goods. The basic idea of the principle of comparative advantage is that as long as the relative opportunity costs of producing goods differ among countries, then there are potential gains from trade.

If each country specializes in areas where its advantages are greatest or disadvantages are least, the gains from trade will make each country better off than it would be if it remained self-sufficient. [3]

(Note: You can use tables or a financial calculator. If you use a calculator, please provide the inputs you used to solve the problems.) (5 points each = total 20 points)

Comparative advantage is the concept that production can be conducted with lower opportunity cost than a competitor. The lower cost of

You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this

Prepare an 8- to 10-page fundamental financial analysis (excluding appendices, title page, abstract, and references page) that will cover each of the following broad areas based on your chosen company’s financial statements:

| (d) 47.37 Equity required (Residual income) = $625,000*40% = $250,000 Dividend paid = $475,000 - $250,000 = $225,000 Dividend payout ratio = 225000/475000 = 47.37%

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Comparative advantage in economics is when a country can produce a good at a lower opportunity cost relative to other producers. It is because of this theory that output will increase because a producers within a country specializes Countries will gain the ability to maximize their efficiency and their labor force which facilitates mass-production of products, resulting in higher profits and international trade. This is because the economies of scale reduces overall cost, by producing more units. If the two countries moved towards protectionism and attempted to become self-sufficient then the production of goods would then

However, it was apparent to economists that nations with similar resource endowments exchanged similar products with each other. Economists felt that trade explained solely by comparative advantage was an incomplete analysis of international trade. Furthermore, since the classical trade theory was unable to explain intraindustry trade, economists decided to expand on the classical trade theory by creating a new theory of trade (Carbaugh, 2011). The new theory states that economies of scale provide incentive for a country to specialize in a particular product (Carbaugh, 2011). Furthermore, based on economies of scale, nations with similar factor endowments will trade with each other as sometimes it is beneficial (Carbaugh, 2011). Arguments stemming from this new trade theory puts the economic case for free trade in doubt.

The country can maximize their wealth by putting the resources in the most competitive industries. Government created comparative advantage rather than free trade because now easier moves the production processes and the machines into countries that can produce more goods (Yeager & Tuereck, 1984). However, many countries now move to new trade theory suggests the ability firms to limit the number of competitors associated with economic scale (reduction of costs with a large scale of output) (Krugman, 1992). The comparative advantage occurs when two-way trade in identical products, it will useful where economic scale is important, but it will create problem with this model. As a result, government must intervene in international trade for protection to domestic firms (Krugman, 1990)

International business ethics challenges the corporate world to deal with questions of what to do in situations where ethical standards come into conflict as a result of the different cultural practices in the nation. Since, there is this dilemma that has progressively troubled the large multinational corporations, international business ethics has arisen to help address these adhesive subject matters. There are several international business ethics discussions on the question of how to act in the home country as opposed to the host country is at the central point of most international corporations. The argument in question is how companies should practice their business according

Having something to trade, whether it be a product or service, can be very beneficial in a fair market. This comparative advantage simply means being able to provide a good or service more effectively than another. Having a comparative advantage does not necessarily mean the good or service produced is the best available, but rather that it makes more sense to produce it than something else. For example, if Mary produced swings and Karen produced slides, and it would take both Mary and Karen twice the amount of time and money to produce the other’s item needed to make a swing set, it would make more sense for them to trade equally through the market for what they would need than to waste time and effort in producing their main product. This ensures efficiency and both Mary and Karen would have a comparative advantage with their products. This example illustrates how both Mary and Karen have a comparative advantage since they both have the absolute advantage in this situation.

RICARDO proved in 1817 that when every countries specialized in the element where they have the comparative advantage, and then trades those element, all countries are better off. This theory called the law of comparative advantage became the primary reason for international trade. Now a days MNC are the primary actors of international trade, and the bargaining model that they use with countries government can appear as a practical implementation of the law of comparative advantage. In fact Dunning, J. H. (2000) estimate that competitive advantage which is a type of comparative advantage is at the heart of company motivation and ability to operate internationally as an MNC. Besides Ramamurti, R. (2001) suggest that the traditional bargaining model is based on comparative advantage that the MNC and state have respectively. The bargaining process would then be the decision process through which each party express which comparative advantage would be traded. The MNC can for example trade its technology for the accesses to natural resource that the countries government possess. Ramamurti (2001) also emphasize the point that it became obvious that the previous process is only a part of the actual bargain and that another part of the bargain is operated at a countries level (between host and home country), this step actually allow and favors international trade between those countries, but at the hour of the liberalization the actual trade would be conducted by MNC. As an example

Manufacturing adjusts to meet a constant return on the product (Hunt & Morgan, 1995). Effectively, these theories rely on national monopolistic models to explain comparative advantage (Ossa, n.d.). While the standard of comparative advantage explains why trade can exist between countries, the assumptions do not account for conditions of increasing returns and imperfect competition.