Once added, the Canadian items total $10760.70 and the USA items add up to $9912.25 Canadian. This is an $848.46 difference in the total prices, which works out to be a 11.7% difference. There are a few reasons for this:

Firstly, economies of scale apply to the U.S. and Canada’s present situation. The principle of “economies of scale” essentially states that the cost to produce one unit of something decreases as you produce more units. For example, imagine a widget factory that costs $100 a week to run and the cost to produce each widget is $1. If the factory makes 50 widgets a week then the average fixed cost of each widget is ($100+$50)/50 widgets = $3 per widget. However, if the machine can make 100 widgets a week then the average fixed cost of each widget is ($100+$100)/100 widgets = $2 per widget, making the later example cheaper since more items are produced. Since the U.S. is a much larger market than Canada, U.S. companies are able to produce their products cheaper in an economy of scale, naturally making the U.S. products cheaper.

Second, the value of the U.S. dollar is more than the value of the Canadian dollar. What does this mean? There are three ways to view the value of a currency currency:

1.                   Purchasing power in your own country
2.                   Purchasing power in another country
3.                   How much the currency is worth in relation to other currencies around the world

The main one that we are looking at here is purchasing power in another country. Since the U.S. dollar is worth more compared to other countries’ currencies, it can purchase more goods for less money in another country than Canada, for example. For example, the US dollar is worth 7.79000 Chinese Yuan and the Canadian dollar is worth Chinese 6.63321 Yuan. So, the U.S. dollar can buy more in China than Canada so it is able to buy more for less and sell the products at a lower price to its consumers.

Thirdly, the Canadian government taxes more than the U.S. government on both it's citizens and our companies, as spoken about previously in this report. U.S. businesses and companies do not get taxed as much as Canadian companies, so Canadian companies crank up their prices to cover their larger costs, contributing to the reasons why items in the U.S. are cheaper than the exact same items in Canada.

Only two of our thirty items were cheaper in the Canada than the USA. The two items were a Tragically Hip CD and HP 8.5 x 11 printer paper (500 sheets). Why would these to items be cheaper in Canada? The Tragically Hip are a Canadian-born whose CD's are made in Canada, and the majority of their fans are in Canada. The economy of scale principle applies here. CD’s purchased by U.S. businesses to resell to consumers also have transportation costs to cover to ship the item to the U.S. since it is produced in Canada. Since Canada has the major fan base they are able to sell more CD's in Canada than the USA. The paper is cheaper because paper is a scarce resource in the US and since they need the product, they are willing to pay a premium for it. The other reason is the travel costs. Gas and the transportation of goods across the border costs money, so it of course costs money to move the paper and CDs across the border from Canada to the U.S.