International trade is becoming more and more important for certain businesses. Those companies need to find out about which country they can sell their goods or services. This is quite important for every business, if they want to do a foreign trade. Further you'll find why different theories are a benefit for international trade. About the non-European country and the business 'Gemos Flowers'. There are various classifications of businesses that are involved in selling their goods abroad.
They might do this by exporting to one or more specific customers, by creating sales without operations or by adopting a more structured multi-national approach. Before a business wants trade in another country, he or she first has to do some research to find out whether the country is profitable or not. In this case I choose the country Canada. When doing a research the best information you must find, is the SLEPT analysis. Using this analysis, you are able to know more about the Social, Legal, Economic, Politics and the Technology in Canada. Enjoy reading this report! Name: Denise Chan
Class: 2IBS1 Cohort: 2004 – 2008 E1. A detailed explanation of how international trade leads to the benefits and costs identified using relevant theories Theory of David Ricardo David Ricardo was born in 1772 at London, England. He was a British political economist and one of the most influential of the classical economist. He was also a successful businessman, financier and speculator, and he was quite rich. Ricardo developed two key theories that are still important in the economic courses today. Those are: * Distribution theory * International trade theory (comparative advantage)
Distribution theory With his partner Malthus, Ricardo was very concerned about the impact that increased populations would have on the economy. He argued that when more people and more land would have to be cultivated. However, the return from this land wouldn't be constant the same. In fact the land would suffer from decreased returns. When you buy extra land it would become more and more profitable and it attract a further capital. The allocation of each factor of production to each area of economic activity would be determined by the level of economic rent, which could be earned.
When the returns are decreasing, the capital would shift to more profitable activities. International trade theory The international trade theory, also named as the comparative advantage, is focused on comparative costs and how a country could make profit when it had lower costs. The original example was the trade in wine and cloth between England and Portugal. Ricardo showed that one country produces a product for lower costs than the other country, so they should specialize in that product. And that other country would specialize in the other product, and the two countries could then trade.
The benefits of international trade are that both countries are distributional and they can improve their income. The changes on income are always a benefit, because foreign trade doesn't affect value. If every country specializes where they had a comparative advantage, then the level of world's welfare should increase. Ricardo realized that an advantage was a limited case of a more general theory. You can see that in table 1 (next page) that actually Portugal can produce both products cheaper than England. Ricardo saw that it could still be a benefit for both countries to specialize and trade.