International Trade Midterm Study Guide

According to Colander, "The reason two countries trade is that trade can make both countries better off" (2004, p. 416). In economics, the theory of comparative advantage clarifies why it can be advantageous for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. What matters is not the absolute cost of production, but instead, the ratio between how easily the two countries can produce different kinds of goods. The basic idea of the principle of comparative advantage is that as long as the relative opportunity costs of producing goods differ among countries, then there are potential gains from trade.

If each country specializes in areas where its advantages are greatest or disadvantages are least, the gains from trade will make each country better off than it would be if it remained self-sufficient. [3]

Due to the differences between the countries in its profitable fundamentals; the International Trade occurs. The contracts between the countries consider as the primary driver of the global exchange. These contracts concluded on the basis of the countries beneficial elements and advantages. Each international trade between the countries depends on numerous focal points of this exchange process. The economics and producers effectiveness measured by absolute advantage for these economics/producers. For example; if the producer needs lesser amount of contributions/inputs to provide specific product, then this producer has an absolute advantage in producing

The reason trade makes life easier is because of a principle called comparative advantage. To illustrate what comparative advantage is, I’ll use two countries: country A and country B. Let’s say that country A is good at producing food, but not good at producing shoes. Country B excels at manufacturing shoes, but is lacking in the food processing industry. Both countries, by themselves, will have a harder time living until they decide to trade with one another. Since country A is better at making food, and B is better at manufacturing shoes, they should specialize in what they do best and trade with one another to both benefit. Country A can produce far more food when they don’t have to worry about shoe production, and country B can manufacture more shoes when not worrying about planting and harvesting food. This is the principle of comparative advantage. Trade allows countries to specialize in producing goods that they have the advantage in, while still having other commodities purchased by trading their manufactured goods. This principle works great for countries with good economies and many resources, but what about in developing countries where they don’t have comparative advantage in anything? Wheelan answers this question in his book Naked Economics. He says, “Workers in Bangladesh do not have to be better than American workers at producing anything for there to be gains from trade. Rather, they

Nations trade with one another because it is mutually advantageous for both parties when one is more efficient at producing a certain good and at a lower cost, and the other is proficient at producing a different good or service more efficiently. This is based on Ricaro’s theory of comparative advantage.

It has been said that because of immigrant’s minimum wage keeps getting lower. This is not true. Because of immigrants, we are able to get “consumer goods” at such a low price. Also because immigrants work for less than minimum wage, it cuts the prices of our goods, which allows us to get it for the prices we do. “When people migrate from one nation to another, the supply of labor in the

International trade is the exchange of goods, capital, and services across international borders or territories. In most countries this trade represents a significant share of their (GDP) gross domestic product. This type of trade has political, economic, and social importance to all nations involved. There are many factors surrounding international trade, such as, advantages, limitations, foreign exchange rates, and others. As we review these factors, this will allow us to better understand how international trade truly functions.

Income Inequality means the uneven income is distributed among individuals in a company, groups in a population, or countries in the world. “One-fourth of American employees make less than $10 per hour, which is the income that below the Federal poverty level” (Amadeo). Those are the people like cashier, waiters, or fast food clerks. There is a huge gap between rich people and poor people. The rich people are getting richer while the poor people are getting poorer. This is a serious economic challenge that the United States has been facing for a long time period.

When evaluating the benefits of free trade, the first economic concept we must look at is comparative advantage: the comparative benefit one nation has over another in the production of a

For small developing countries unable to manufacture necessary items the world market presents an opportunity to obtain those items. Even being able to subsidize a country's food resources or modernize a country's food production can change an entire nation's economy. For countries who have an abundance of certain resources being able to trade them

Few can contend that the world is more interconnected and interrelated more than ever. This web of interdependency is primarily made possible by trade, and in the twenty-first century, a large and significant portion of trade is conducted on a global scale. Furthermore, while the majority of people agree that free trade can benefit both parties in terms of economic development and an increase in overall production, many critics have voiced their fears of the negative consequences that may result from a global trade environment with few barriers or limits. Proponents of free trade argue that benefits far outweigh costs and that the primary gain is efficiency of production achieved through comparative

The theory of comparative advantage explains the benefit of free trade. According to this theory by David Ricardo in the early 19th century, “Both countries will be better off if each specializes in the industry where it has a comparative advantage, and if the two trade with one another.” (Citation) International trade opens up markets to foreign supplier, and domestic companies need to improve their efficiency, boost productivity, and lower cost to increase competitiveness instead of enjoying monopolies or oligopolies that enabled them to keep prices well above marginal costs. On the other hand, international trade also offers domestic companies bigger demands and broader markets; therefore more jobs relevant to export have been created. Furthermore, jobs in the US supported by goods exports pay 13-18 percent more than the US national average (ustr.gov).

For the last two centuries the international trade evolved a lot and many economists tried to explain it. One of the first theories that attempted to explain the international trade pattern was the Absolute advantage theory. A.Smith was a great economist; he is the one who created this theory. For A. Smith countries should specialize in products in which they have an absolute advantage. It was a good Theory but it was excluding countries that did not have any absolute advantage. David Ricardo another great British economist found this loophole in Smith’s theory and

Absolute Advantage is the comparison of productivity of a person, company, or nation to another person, company, or nation and the ability to produce with fewer inputs (what is used to make the product) than another producer. Comparative Advantage is the opportunity costs (what must be given up to obtain an item) between two producers and the ability to produce at lower opportunity costs than another producer. Absolute Advantage can be found in both goods that are produced by an individual, company, or nation, while Comparative Advantage is impossible to be found in both goods that are produced by an individual, company, or nation. Although Absolute Advantage is important in international trade, Comparative Advantage plays a larger part and is a key factor in international trade. N. George Mankiw states, “The principle of comparative advantage states that each good should be produced by the country that has the smaller opportunity cost of producing that good” (2014, p. 58). The downfall is that some individuals may be worse off from international trade, while the country’s overall well-being is better off. Absolute and Comparative Advantage are a large part of international trade, which can be beneficial to the economy as a whole.

2. What makes China so attractive to U.S. food companies? Discuss why it is important to gain