The Basis For International Business Essay

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1. The Basis for International Business • International business encompasses all business activities that involve exchanges across national boundaries. o Absolute and Comparative Advantage An absolute advantage is the ability to produce a specific product more efficiently than any other nation. Saudi Arabia has an absolute advantage in the production of crude oil and petroleum products, South Africa in diamonds, and Australia in wool. A comparative advantage is the ability to produce a specific product more efficiently than any other product. Goods and services are produced more efficiently when each country specializes in the products for which it has a comparative advantage. o Exporting and Importing Exporting is selling and shipping raw materials or products to other nations. The top ten merchandise-exporting states are shown in Figure 3.1. Importing is purchasing raw materials or products in other nations and bringing them into one’s own country. A nation’s balance of trade is the total value of its exports less the total value of its imports, over some period of time. If a country imports more than it exports, its balance of trade is negative and is said to be unfavorable. A trade deficit is an unfavorable balance of trade. (See Figure 3.2.) A nation’s balance of payments is the total flow of money into the country less the total flow of money out of the country over some period of time. Balance of payments is thus a much broader concept
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