The business will witness higher sales volume as the reduced prices will attract more customers to its products. By lowering prices of the outputs, the business will increase satisfaction of its customers. By boosting customer satisfaction, the business is able to absorb and retain the customers of its products for a long period of time The business should not take the idea of lowering prices lightly. This usually comes with a lot of disadvantages to the business which include; Reducing the prices leads to excess demand which will exceed the company’s total supply of its products. This makes the business incapable of satisfying the high market
Because this trade is cheaper in another place companies, to save money need to move their business production there and then send it back to the country of origin. “One reason that inexpensive labor is beneficial is that it allows poor nations to produce commodities more cheaply than wealthy nations where labor is expensive.”(David Harvey)This
1) Discuss the advantage and disadvantages of free international trade ADVANTAGES Increased Production The reason for exchange is to give access to a more amazing variety of products and services. As stated by the Heritage Foundation, free trade fosters rivalry, impelling organizations to enhance and create better products keeping the costs low and high quality. Free trade permits organizations to concentrate on the merchandise or services that they do best. International trade builds a companies market share. As a result of which cost is decreased and the productivity is increased, prompting higher rates of production.
It is also beneficial because a higher productivity means more products can be produced for the same cost (this is because each unit cost is lower) thus making more profit on each product. This view can be compromised as both a positive and negative view for a manager to have. Generally you would expect managers with an autonomous style of management to take this view. Many people have looked in to management, Frederick Taylor developed methods in the early part of the 20th century. Taylor used techniques to increase production based on the view being discussed.
This idea is commonly known as "Supply and Demand". Businesses must attempt to reach an equilibrium between the two which will directly impact the price of the products produced. If something is heavily demanded and at the same time, it's resources are limited, the price of the product will rise. This idea of course works both ways. The easier it is to produce something, the cheaper it will be.
One major advantage associated with trading globally comes from an increase in profits. Typically, the reasons behind purchasing raw materials from a foreign country involve the fact that the materials are cheaper to buy and ship. In turn, this reduces overall expenses and as a result, companies can sell products for less. Supply and demand dictate that when products sell for less than the product of the competition and are of equal quality, the volume sold will rise. Increase in sales, along with the decrease in price of production will ultimately increase profits.
Free trade has many advantages including first, lower prices for consumers by removing tariffs enabling us to buy cheaper imports. Second, free trade encourages greater competition. There are more incentives to cut costs as for example, a monopoly in the U.S. may face competition from foreign companies. Third, the law of comparative advantage says that free trade will enable an increase in economic welfare. This allows countries to specialize in producing goods and have a lower opportunity cost.
Lastly through the reduction of trade barriers it can lead to trade creation, which occurs when, the consumption switches from high cost producers to low cost producers. This creation of trade can help not only the economy but consumers as well and have many positive effects. Free trade reduces the prices of goods and services to consumers. These lower prices are a result of increased competitiveness when a country opens its borders. There is more competition therefore this pushes the prices that domestic producers charge down because a lot of the imported goods coming in are cheaper therefore the producer surplus decreases but the consumers surplus increases (Feenstra, 2011).
Free trade is an economic policy in which one country has open imports and exports with another country, or countries. Edward E. Leamer discusses in his book, Sources of international comparative advantage: theory and evidence, the purpose of free trade is that some countries are able to produce more efficiently than other countries, which could be because they offer lower labor and environmental-protection costs. This allows certain countries to focus on producing what they do best, and trading that product away to other countries in exchange for other necessary goods. This can either be extremely helpful to the economy, or devastating depending on how you look. As other countries have developed new manufacturing plants, they also include
It is not doubtful that consumers in the developing countries could always get benefits from trade liberalization as they can buy the cheaper goods and enjoy the high quality products. In addition, exporters also get benefits from trade liberalization, because they have larger markets. However, producers face the opportunities and challenges in developing countries. Considering that the producers with more productive will get the benefits, but the less efficient ones will get the loss. Obviously, when international competition increases, producers will take more pressures to improve their productivity to meet the needs of the international market.