Notes On Economics And International Trade Theory

Comparative advantage is determined by the “price” of one good in terms of the other good within each country.

Comparative advantage, theorized by David Ricardo, exists when countries have marginal dominance over goods and/or services production levels, and when the opportunity cost of their production is lower. International trade affords great opportunities for workers by improving their overall living conditions. The International Monetary Fund states international trade between diverse countries facilitates trade and industry growth, higher employment levels and more apposite income standards as opposed to countries without international trade economic structures (www.imf.org, 2000).

This means it does not matter if country A can produce more overall than country B, as long as B can produce it more efficiently than country A. Country B will choose to produce that product and then trade it with country A. When a country focuses on a good that it is efficient in producing for a lower price then they increase national income and company’s increase profits. An example of comparative advantage: Country A can produce 28 bikes and 4 radios, Country B can produce 32 bikes and 12 radios. Country B has an absolute advantage in both products but it has a comparative advantage specifically in radios because it can efficiently produce 3 times more for less than Country A (Economics Online, 2017.)

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.

Comparative advantage- a nation, like a person, gains from trade by exporting the goods or services in which it has its greatest comparative advantage in productivity and importing those in which it has the least comparative advantages

A country has an absolute advantage in the production of a good relative to another country if it can produce the good at lower cost or with higher productivity. Absolute advantage compares industry productivities across countries. In the case of Zambia, for instance, the country has an absolute advantage over many countries in the production of copper. This occurs because of the existence of reserves of copper ore or bauxite. We can see that in terms of the production of goods, there are obvious gains from specialisation and trade, if Zambia produces copper and exports it to those countries that specialise in the production

Business internationally has thrived for an inordinate length of time due to its various assistance offered to different nations across the globe. International trade can be defined as the exchange of services, goods, and capital among different countries and regions, short of any barriers. Today it generates close to $18 trillion around the world annually.

When one country is able to be more efficient in producing one good or service compared to a different country, a comparative advantage has occurred. This usually takes place when a country is able to focus and specialize in a product or service so they will have a stronger dominance in what they do. The United States have exceeded in creativity and innovation, which accounts for the advantage in technology (Macroeconomics, 24-38). The U.S. also has a trade surplus in services and is the forerunner in the worlds’ service exports (Global Trade in Services, 84).

As absolute advantage does not say much about trade, in order to understand comparative advantage it is important to know the two concepts which are opportunity costs and the production possibility curve. According to Ricardo, comparative advantage exists when a country

Supply and demand is the amount of a commodity, which determines how consumers and suppliers interact with each other. Supply can mean a stock of a resource which a person or place can provide. Demand is known for needs or costumer’s desires. Supply and demand model can help the people analyze what their country is facing at the moment. However, for supply and demand, you need to determine three things, buyer’s behavior, seller’s behavior, and how buyers and sellers actions affect price and quantity.

The concept of comparative advantage refers to countries' ability to produce certain products and services at lower marginal costs in comparison with other countries. This concept is in strong relationship with international trade. This is because countries prefer to trade with each other the products and services that provide them with comparative advantage. For example, if a country can produce wine at lower costs, but produces clothes at higher costs, that country should trade its excess wine for the clothes produced by another country at lower costs, and that requires that wine, because it cannot produce it at such lower costs.

Price- The price of something is the amount of money that you have to pay in order to buy it.

International trade is historically the oldest and most widespread form of external economic relations. It is a movement of goods that represents a foreign exchange, that is, goods cross the boundaries of the individual countries or economic unit. Foreign trade links the country's internal economy with the world economy and fulfills important functions in the process of developing the productive forces and international division of labor. (Markusen, 1995)

International trade is the exchange of capital, goods, and services across international borders or territories or in other words is the process of import and export. international trade has been present throughout much of history its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced in technology transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. While In most countries, such trade represents a significant share of gross domestic product (GDP). Increasing international trade is crucial to the continuance of globalization this is because without

International export: Exporting is the delivery of commodities to foreign markets from the local primary or secondary producers. In exporting usually, more than two parties are involved.