Question

• What are two of the main arguments favoring the expansion of U.S. businesses into global markets? • What is comparative advantage, and what are some examples of this concept at work in the United States? • How are a nation's balance of trade and balance of payments determined? • What is meant by dumping in global trade?'

Answer 1

Dumping

Dumping in global trade is a concept which is widely used in the context of international trade wherein a country or a company exports a product at a price which is lower in foreign importer market than that of the price in the exporter's domestic market.

Balance of trade and Balance of payments

Balance of trade

Balance of trade refers to the value of exports less imports. Balance of trade may be determined using the formula

TB = X - M

Where

X = exports

M = Imports

TB = Trade balance

Balance of payments

Balance of payments or the balance of international payments comprises of all the transactions that the individuals, companies and government bodies of one country complete with the rest of the world.

Balance of payments may be calculated as

BoP = Balance of current accounts + Balance oof capital account + Balance of Finance account

Comparative Advantage

Comparative advantage refers to the ability of an individual or a group of individuals to carry on an economic activity more efficiently than the other activities. In other words, comparative advantage arises when a country is able to produce a good or service at a considerably lower opportunity cost than the other countries.

For example, With the abundance of low priced labor in China and India and other developing countries specializes in the production of labor intensive products in comparison to United States who has an abundance of low-priced labor in comparison to other countries. Similarly, United States specializes in the production of human and physically capital intensive goods due to the abundance of a highly educated labor force and technically sophisticated equipment that are available with United States.

Arguments favoring the expansion of US businesses into the global market

Though there may be various reasons governing the expansion of US businesses into the global market, the two 2 main arguments which favors the aforesaid principle may be listed as follows:

a. No single nation can solely provide the world with all the necessary goods and services that its people would require at any point of time.

b. It is believed that the global competition and less-costly imports will further keep the prices down.