International Trade and Development Picture Credit:
Share Loading the player If you walk into a supermarket and can buy South American bananas, Brazilian coffee and a bottle of South African wine, you are experiencing the effects of international trade. International trade allows us to expand our markets for both goods and services that otherwise may not have been available to us.
It is the reason why you can pick between a Japanese, German or American car. As a result of international trade, the market contains greater competition and therefore more competitive prices, which brings a cheaper product home to the consumer. What Is International Trade? International trade is the exchange of goods and services between countries.
This type of trade gives rise to a world economy, in which prices, or supply and demandaffect and are affected by global events. Political change in Asia, for example, could result in an increase in the cost of laborthereby increasing the manufacturing costs for an American sneaker company based in Malaysia, which would then result in an increase International trade 1 the International trade 1 that you have to pay to buy the tennis shoes at your local mall.
A decrease in the cost of labor, on the other hand, would result in you having to pay less for your new shoes. Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. Almost every kind of product can be found on the international market: Services are also traded: A product that is sold to the global market is an exportand a product that is bought from the global market is an import.
Imports and exports are accounted for in a country's current account in the balance of payments.
Increased Efficiency of Trading Globally Global trade allows wealthy countries to use their resources—whether labor, technology or capital — more efficiently. Because countries are endowed with different assets and natural resources land, labor, capital and technologysome countries may produce the same good more efficiently and therefore sell it more cheaply than other countries.
If a country cannot efficiently produce an item, it can obtain the item by trading with another country that can. This is known as specialization in international trade. Let's take a simple example. Country A and Country B both produce cotton sweaters and wine.
Country A produces ten sweaters and six bottles of wine a year while Country B produces six sweaters and ten bottles of wine a year. Both can produce a total of 16 units.
Country A, however, takes three hours to produce the ten sweaters and two hours to produce the six bottles of wine total of five hours.
Country B, on the other hand, takes one hour to produce ten sweaters and three hours to produce six bottles of wine total of four hours. But these two countries realize that they could produce more by focusing on those products with which they have a comparative advantage.
Country A then begins to produce only wine, and Country B produces only cotton sweaters. Each country can now create a specialized output of 20 units per year and trade equal proportions of both products.
As such, each country now has access to 20 units of both products. We can see then that for both countries, the opportunity cost of producing both products is greater than the cost of specializing. More specifically, for each country, the opportunity cost of producing 16 units of both sweaters and wine is 20 units of both products after trading.This is the written statement of Joshua P.
Meltzer presented before the United States International Trade Commission investigation on Global Digital Trade 1: Market Opportunities and Key Foreign. The previous unit answered the question, "Why do nations trade?" by describing the causes and effects of international trade and the functioning of a trade world economy.
While this question is interesting in and of itself, its answer is much more interesting if it helps us answer the question. International trade transactions are facilitated by international financial payments, in which the private banking system and the central banks of the trading nations play important roles.
1(a) Explain the link between International Trade and the Production Possibility Curve. Quoting Benjamin Franklin, “No nation was ever ruined by trade”.
International Trade is the exchange of goods between countries because of the potential gains from such an operation. The Lagos International Trade Fair enjoys wide publicity in the electronic and print media throughout its ten (10) day duration before and even after; thereby presenting a unique opportunity for Exhibitors.
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