European Business Enviroment

European Business Environment

International trade can describe as the exchange of goods and services between two or more countries. International trade brings much advantage such as low production cost, like when a country is buying goods at a cheaper rate from another country. It will reduce their production cost because they will stop or reduce the production of those particular goods

International trade serve some country as a major source of income like china that depends on trading with most countries for their major source of revenue

Comparative advantage

Comparative advantage exist when a country has lower opportunity cost over another country in production of goods for example china can say to have comparative advantage over Vietnam because its produce more finish goods at a cheaper cost than Vietnam. Comparative advantage is good to all countries involved.

A country can gain comparative advantage by specializing in a particular product which they are good at like Britain specializing in financial services thereby gaining comparative advantage of France that specialize in champagne

The principle of comparative advantage (David Ricardo, 1817) states that it is not necessary to have absolute advantage, only a comparative advantage, he further explains that one need to make something at a lower cost in terms of other goods sacrificed to gain comparative advantage

A country can have absolute advantage over another country if the country can produce goods using smaller resources than another country like if a unit of labour to produce 90 units of wool in china and 30 units of wine while in France 1 unit of labour produce 20 units of wool and 70 units of wine then china has an absolute advantage in wool while France has absolute advantage in wine

China can benefit in trading wool to France’s wine

Advantage of international trade

The biggest advantage of international trade is that countries trading with each other are less likely to go to war with each other

International trade can help a country to establish and specialize on particular goods

International trade improves consumer welfare by increasing choices and quality which leads to lower prices

Disadvantage of international trade

The biggest disadvantage of international trade is the destructions of local industry and labour, when a country so much on imports from abroad like UK once a leading car production country over dependence on car importation destroy it once local thriving car company like range rover etc making them

When a country depends so much on trading with a particular country, it makes them vulnerable, the dependent country can be easily influence in the policies by the country they are depending on