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Positive effects of international trade
Positive and negative effects of trade
Positive effects of international trade
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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
To reiterate, let’s construct another example of two companies that produce oranges. Company number one is located in Florida where it’s the perfect environment to produce oranges. Company number two however is located in Toronto, which to be fair, isn 't a suitable environment to produce natural oranges, unless of course they’re produced in a green house. Although both companies are able to grow and produce oranges, company number one has the absolute advantage because they use the much cheaper and natural methods, hence the greater demand. This theory can be contradicted with the concept of comparative advantage, which in description means the ability to produce specific goods at a lower opportunity
In this chapter of Naked Economics, by Charles Wheelan, he describes many aspects of trade. It begins by showing the capabilities of trade and how it affects everyone as a whole. It makes it so that everyone is better off than normal. To put it into perspective, he put the image in your head of how hard your life would be without trade, you would have to make your own clothes, find a way to get/make your own food, make your own car, etc... After showing some of the advantages to trade, he applies it to a global persona and begins to introduce his opinion on how global trade (globalization) makes us richer. One of the key explanations of this point is that trade frees up time in our busy schedule, therefore allowing us to use that freed up
Trade, of course, is only part of a larger network of relationships between our two countries. This network evolves in response to many complex influences, and exporters need to consider how our two countries' ever-expanding, ever-changing relationships will affect their activities. To take just a few examples:
Every year there is a ‘league table‘ published showing the level of economic growth achieved by each country. The comparison is made using each countries Gross Domestic Product, or GDP. An important factor to look at is the difference between actual and potential economic growth. Actual economic growth increases in real GDP. This increase can occur as result of using previously unemployed resources, or reallocating resources into more productive areas or improving existing resources. Whereas potential economic growth is the productive capacity of the economy. For example, it can be shown by the predicted ability of the country to produce goods and services. This changes when there is an increase in the quantity or quality of the resources. All countries have different ways of achieving this with the resources they have available to them. For this reason it party answers the question of why some countries are richer than others. It is widely thought that the productive capacity of an economy will increase each year largely due to improvements in education and technology. This will obviously differ from country to country. For example, in the UK the quality of fertilizer could be improved, hence forth increase the years fruit and vegetable output.
While free trade has certainly changed with advances in technology and the ability to create external economies, the concept seems to be the most benign way for countries to trade with one another. Factoring in that imperfect competition and increasing returns challenge the concept of comparative advantage in modern international trade markets, the resulting introduction of government policies to regulate trade seems to result in increased tensions between countries as individual nations seek to gain advantages at the cost of others. While classical trade optimism may be somewhat naïve, the alternatives are risky and potentially harmful.
Comparative advantage is a dynamic concept. It can and does change over time. Some businesses find they have enjoyed a comparative advantage in one product for several years only to face increasing competition as rival producers form other countries enter their markets.
Comparative advantage means that an industry, firm, country or individual are able to produce goods and services at a lower opportunity cost than others which are also producing the same goods and services. Also, in order to be profitable, the number in exports must be higher than the number in import. From the diagram we seen above, Singapore is seen to have a comparative advantage in some services. The services are Transport, Financial, business management, maintenance & Repair and Advertising & Market Research, etc. These export services to other countries improve the balance of payment. On the other side, Singapore is seen to have a comparative disadvantage in some services. The services are Travel, Telecommunications, Computer & Information,
The article examines some of the influential theories in the domain of international trade including hyperglobalisation and comparative advantage. The publisher was keen to demonstrate how the theories need to be embraced since hyperglobalisation promotes investments flows from partners pursuing such trading agreements. The trading partners can still reduce their operation cost such as transportation while still navigating the complexities of hyperglobalisation. The author also endeavored to demystify the terminology of comparative advantage by issuing examples and previous concerns reported on the subject. It has been hailed that the traders often traded as per their factor endowments by concentrating on spheres of their specialty. The author also hinted to the readers that the theory of comparative advantage is a major concept since it is the first theory that economics students are briefed on. Arguments in support of the theory reveals that countries that have this level of visibility stand to benefit massively once they specialize in areas of their specialty. He purp...
All nations can get the benefits of free trade by being specialized in producing goods they have a comparative advantage and then trade them with goods produced by other nations in the world. This is evidenced by comparative advantage theory. Trade depends on many factors, country's history, institution, size and. geographical position and many more. Also, the countries put trade barriers for the exchange of their goods and services with other nations in order to protect their own company from foreign competition, or to protect consumers from undesirable products, or sometimes it may be inadvertent.
In order for international trade to work well, governments must allow the world market to determine how goods are sold, manufactured and traded for all to economically prosper. While all nations may have the capability to produce any goods or services needed by their population, it is not possible for all nations to have a comparative advantage for producing a good due to natural resources of the country or other available resources needed to produce a good or service. The example of trading among states comprising the United States is an example of how free trade works best without the interve...
”Free trade policies have created a level of competition in today's open market that engenders continual innovation and leads to better products, better-paying jobs, new markets, and increased savings and investment” (Denise Froning). Though Free trade plays a huge role in the economy today because of what and where it is used. Free trade allows for traders to trade across national boundaries and other countries without government interference. Meaning that traders have very few regulations that allow for them to do this without the government intervening. Free trade makes things for traders much easier and also allows for many more jobs in the US, such as exporting jobs, or jobs in the auto industry and plants. Though there are many other types of trade policies, none give more benefits than that of free trade. Free trade is not determined by artificial prices that may or may not reflect the true environment of supply and demand.
Political arguments for trade intervention are mainly concerned with protecting the interests of certain groups at the expense of other groups. Most of the time domestic firms benefit from this, while customers suffer the consequences.
International business contains all business transactions private and governmental, sales, investments, logistics, and transportation that happen between two or more regions, nations and countries beyond their political limits. Generally, private companies undertake such transactions for profit governments undertake them for profit and for political reasons. It refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources includes capital, skills, and people. for international production of physical goods and services such as finance, banking, insurance, and construction.
... to develop comparative advantages and conduct the uneven competition and make a joint effort to accelerate its advancement, and therefore, increase their respective competitiveness on a global scale.
The first concept to consider while entering into a Trade Agreement is called the theory of comparative advantage if a country has an advantage in producing some product it means that country is considered the most efficient country to produce that particular product. In other words if a country use the same inputs in their production process for a specific good, then that country can produce more and better quality of that goods compared to all the other countries.