2.3 THE FIELD OF INTERNATIONAL BUSINESS Available under Creative Commons-ShareAlike 4.

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International License (http:// creativecommons.org/licenses/by-sa/4.0/). The term international
business denotes all international dealings of a country that pertain to the exchange of goods,
services and information for commercial purposes, and money. Figure 2.1 graphically depicts the
field and its main activities. All international business activities are interrelated and interdependent.
Fig. 2.1: International Business Activities If industry produces more than people can consume, then
the country will export (X) the difference: SS > DD → X 12 If people consume more than industry can
produce, then the country will import (M) the difference: DD > SS → M DD = Aggregate Demand SS =
Aggregate Supply 2.3.1 EXCHANGE OF GOODS Available under Creative Commons-ShareAlike 4.0
International License (http:// creativecommons.org/licenses/by-sa/4.0/). There are many reasons
why goods are exchanged among countries. These reasons are referred to in the literature as
theories of international trade. They will be explained in greater detail in INTERNATIONAL TRADE
(Page 140). In general, the reasons for trading goods among countries can be classified into two
categories: Supply differences (that is, differences in countries' material or technological
endowments) Demand differences (that is, differences in consumer preferences) Theoretically, when
supply differences exist, a country may either export the excess of local production over local
demand or, if local demand exceeds local supply, import enough products from abroad to satisfy
local demand. Differences between demand and supply offer only a partial theoretical explanation
for international trade, however. In reality, a country may export a portion of its domestic production
even though domestic demand is unsatisfied. Similarly, foreign goods may be sold in domestic
markets that are literally glutted with domestic products. The price difference between domestic and
foreign products is only one factor to examine in these seemingly paradoxical situations. Customer
preferences and tastes for foreign products are usually much more important explanations.
Whatever the reasons for the exchange of goods among countries, the volume and importance for
human survival of exchange activities have accelerated beyond anyone's imaginings. Over one-fourth
of the world's products are traded among its over 150 countries.