International trade

International trade is the system by which countries exchange goods and services. Countries trade with each other to obtain things that are better quality, less expensive or simply different from goods and services produced at home. The goods and services that a country buys from other countries are called imports, and goods and services that are sold to other countries are called exports.

While trade takes place mostly between companies, government and individuals frequently buy and sell goods internationally, too. Most international trade consists of the purchase and sale of industrial equipment, consumer goods oil and agricultural products. In addition, services such as banking, insurance, transportation, telecommunications, engineering and tourism account for one-fifth of world exports.

International trade occurs because there are things that are produced in a particular country that individuals, businesses and governments in other countries want to buy. Trade provides people with a greater selection of goods and services to choose from, often at lower costs than at home.

Today, most industrial nations could produce almost any product they chose. However, this does not make good economic sense. Instead of trying to produce everything by themselves, which would be inefficient, countries often concentrate on producing those things that they can produce best, and then trade for other goods and services. By doing so, both the country and the world become wealthier.

 New words

Obtain – купувати, здобувати;

Quality – якість;

Frequently – часто;

Industrial equipment – промислове обладнання;

Insurance – страхування;

Produce – виробляти;

Wealthy –  багатий.

Answer the questions

1.      What is international trade?

2.      Why do countries trade with each other?

3.      What do countries usually purchase and sale?

4.      Which are the advantages of international trade?

Free trade versus protectionism

All governments regulate foreign trade. The extent to which they do so is a topic of lively debate. The news is full of reports of different groups demanding to be protected from foreign competition, new trade agreements, and problems with imports and exports. Some call for more government action, others for less.

Although the amount of government involvement in trade varies from country to country and from product to product, overall barriers to trade have been reduced since World War II.

Those who favor free trade think that an open trading system with few limitations and little government involvement is best. Advocates of protectionism believe that governments must take action to regulate trade and subsidies industries to protect the domestic economy. All governments practice protectionism to some extent. The debate is over how much or how little protectionism to use to reach a country’s economic goals.

In theory, completely free trade would provide the most goods and services at the lowest possible cost as consumers everywhere are allowed to buy goods and services from whoever in the world produce them most efficiently. However, the competition that free trade brings to domestic industries may result in unemployment and slower growth. For example, if cars can be produced much more efficiently in another country and consumers are free to buy them, the domestic auto industry will loose business. In this case the government must seek to protect its auto industry from competition by discouraging imports of lower-cost cars. 

New words

Free trade versus protection – вільна торгівля чи протекціонізм;

Extent – ступінь, міра;

Involvement – залучення;

Overall – повний, загальний;

Consumer – споживач;

Domestic – внутрішній;

Discourage – опирати, протидіяти.

Answer the questions

1.      Why free trade and protection are topics of lively debate?

2.      What are the arguments of those who favor free trade?

3.      What are the arguments of those who favor protectionism?

4.      How can the government protect its domestic industry from foreign competition?

Pricing

All products and services have prices. A price depends on different factors, for example, credit terms, delivery, trade-in-allowance, quality etc.

How are prices set?

Through most of history, prices, were set by buyers and sellers communicating with each other: sellers asked for a higher price than they expected to get, and buyers offered less than they expected to pay. So, through deal-making process they settled a reasonable price.

The necessity of setting one price for all buyers arose with the development of large-scale retailing at the end of the 19^th century. In modern business a price is the only element in the marketing mix that produces revenue: the other elements represent cost.

Companies handle pricing in a variety of ways. In small companies prices are often set by top management rather than by the marketing or sales department. In large companies pricing is typically handled by divisional and product-line managers. In industries where pricing is a key factor (aerospace, oil companies, railroads), companies often establish a pricing department to set prices or assist other in determining appropriate prices. This department reports either to the marketing department or top department. Others who influence the pricing are sales managers, production managers, finance managers and accountants.

New words

Deal-making process – процес переговорів, торг;

Settle a price – домовлятися про ціну;

Reasonable – поцінний;

Retailing – роздрібна торгівля;

Revenue – виторг, прибуток.

Answer the questions

1.      Which factors does a price depend on?

2.      How were prices set long ago?

3.      Why did the necessity of setting one price for all buyers arise?

4.      How do companies handle pricing?