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Economics of International Trade Explained

This document discusses international trade and the concepts of absolute and comparative advantage. It explains that international trade allows countries to access goods and services not available domestically and creates more competitive markets. Theories like comparative advantage argued by David Ricardo state that specialization and free trade will benefit all trading partners through increased real wages, even for less efficient producers. A country has an absolute advantage in producing a good if it uses fewer resources, while comparative advantage depends on the opportunity cost of producing one good over another.

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Marisa Lee
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5 views1 page

Economics of International Trade Explained

This document discusses international trade and the concepts of absolute and comparative advantage. It explains that international trade allows countries to access goods and services not available domestically and creates more competitive markets. Theories like comparative advantage argued by David Ricardo state that specialization and free trade will benefit all trading partners through increased real wages, even for less efficient producers. A country has an absolute advantage in producing a good if it uses fewer resources, while comparative advantage depends on the opportunity cost of producing one good over another.

Uploaded by

Marisa Lee
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

This video will discuss to you the economics of International trade and comparative advantages

When you go to malls, and you got to find imported products like Belgian chocolates, smartphones,
gadgets, and Brazilian slippers, you are experiencing International Trade.

International trade is the exchange of goods and services between countries.

It allows countries to expand their markets for both goods and services that otherwise may not have
been available domestically.

the market is more competitive which results in more competitive pricing which brings a cheaper price.

trade surplus is the term used when a country exports more than it imports.

On the other hand, trade deficit is when a country imports more than it exports

How did international trade emerged?

For a number of years, imports and exports of grain had been subject to a set of tariffs, subsidies, and
restrictions collectively called the Corn Laws. Designed to discourage imports of grain and to encourage
exports. Its purpose was to keep the price of food high. clearly worked to the advantage of those in
power

One of the father of economics, David ricardo use the theory of comparative advantage to argue the
Corn Law.

According to theory of comparative advantage, specialization and free trade will benefit all trading
partners (real wages will rise), even those that may be absolutely less efficient producers.

Absolute advantage

A country enjoys an absolute advantage over another country in the production of a good if it uses
fewer resources to produce that good than the other country does.

Suppose, USA and Brazil produces wheat. But USA Climate is more suited and its labor is more
productive than Brazil. USA is enjoying Absolute Advantage over brazil in producing wheat.

Comparative advantage

A country enjoys a comparative advantage in the production of a good if that good can be produced at a
lower opportunity cost (in terms of other goods that must be foregone).

Suppose America and Brazil both produce wheat and corn. they must each choose between planting
land with either wheat or corn. To produce more wheat, either country must transfer land from corn
production. to produce more corn, either country must transfer land from wheat production. Each
country will choose the crop that has the lowest opportunity cost.

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