Introduction

International trade

It means the exchange of goods and services between countries.

Cost and Benefit Analysis

benefit:

• Lower prices——(factor endowment & comparative advantage)
• Greater choice
• Differences in resources —— chance to access to import the commodities that are lacked
• Lower cost —— economic of scale
• Increase in competition and more efficient use of scarce resources
• Source of foreign exchange
• Spread of ideas and technology

Cost:

• Decrease in demand for domestic products
• Interdependency
• Trade restrictions

Absolute advantages

the ability of a country to produce a good or service using fewer resources than another country.

Comparative advantages

the ability of a country to produce a good or service at a lower opportunity cost than another country. Comparative advantage is based on a country’s factor endowment.

Comparative advantages – limitation/assumption

• Information asymmetric
• No transport costs
• Only two countries and two goods
• The opportunity costs are constant
• The goods being traded are identical
• Factors of production are constant in the country
• No trade barriers

Free trade

Takes place between countries when there are no barriers to trade put in place by governments or international organizations. Goods and services are allowed to move freely between countries.

Protectionism

Means the methods and behaviors protecting domestic producers from foreign competition.