Trade

Reasons why countries trade with each other

Trade is the act or process of selling, buying, or exchanging goods or services at either retail or wholesale, within a nation or between different countries: foreign trade; domestic trade. Trade between countries takes place because resources are unequally distributed through the world and the movement of the factors of production is limited, constantly some countries are better at producing certain goods than other.

Key reasons
• Different factors endowment – some countries are rich in natural resources while other countries have comparatively little. Trade enables countries to export some resources and earn profits to pay for imports of other commodities
• Increased welfare – trade give permit to countries to gain a greater level of consumption than they would do domestically.
• Economic scale – to gain economic scale countries trade with each other. With trade and production on a huge scale than may be possible domestically, a country may be able to achieve more economic scale.
• Diversity of choice – trade allows us to access products and services that we may not be able to create ourselves.

Trade is important for UK because it is a key feature of economic growth and development. It will provide UK with the resources which they don’t have, allows production on a large scale. For example, coffee in England. Usually England doesn’t have coffee fields, due to its cold weather, but with the help of trade facility they can get import coffee from brazil. Let’s take an another example, UK might have a good steel ores, and they have so much that if in case they don’t need it, what they can do is export it. It’s bit complicated issue though but the bottom line is, to fulfill the wants an...

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...iers to trade between the participating countries. The most popular trade bloc is NAFTA, between Canada, Mexico, UK and North America.
Advantages of trade Bloc to UK:
Foreign direct investment – it attracts the abroad direct investment which leads to the benefits of economics of participating the countries. it helps the country to build huge market which at the end provides low manufacturing cost.
Economies of scale – the expansion of huge market provides the benefits of economies of scale where the average normal cost of production is decreased and bunk production can be approachable.
Competition – it gives the opportunities to the producers from different countries to come closer and develop tough competition among each other.
Trade effects – the trade bloc remove the tariffs which again reduce the cost of importing the goods and services from different countries.