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).
Benefits the economy, supports thousands of Australian jobs and is helping to provide protein to some of the world’s poorest people across Asia and the Middle East. Australia’s beef cattle exports are wroth $1.35 billion and the sector employs more than 10,000 people, including many Indigenous Australians.
Some Major benefits of international trade include the reduction of poverty, expansion of business opportunities for local companies and reduces costs for consumer.
Over time, there have been several exposés by animal rights activists published revealing the maltreatment of Australian exported cattle, goats and sheep. This is the harsh reality that Australian animals face practically daily.
Which is cost difference determines the patterns of international trade. Absolute advantage is trade benefits when each country is at least cost producer of one of the goods being traded. In the 1800s, David Ricardo developed the theory of comparative advantage to measure gains from trades. This theory is based on comparative advantage and it states each nation should specialize in production of those goods for which its relatively more efficient with a lower opportunity cost.
Australia being a major exporter of high quality beef is viewed by many as an ideal investment for investors to take advantage of the opportunity of the rise in future demand for beef and the limited grazing lands available for beef production. There has been demand in Australia’s agricultural farming lands by investors who view farming lands as a long-term investment, with the view of a high returns in the Australia’s agricultural sector as the growth in middle class of Asia materializes pushing for a greater demand of beef. The current dilemma which the Australian beef sector faces is the decline in herd numbers to 40-year low, the increase in the cattle slaughter rate and the growth in demand for beef exports. External competition in the beef market from international players aim at establishing a hold on foreign exports and aim for a greater share in the beef export
Through live exports, rural communities continue to function and sustain, some which solely depend on the industry. In June 2011, the Federal Government placed a ban on cattle exports to Indonesia after footage of abusive treatment of Australia livestock was released and sparked public outrage and parliament debate. The ban, however, did little to improved welfare conditions and instead placed severe financial and emotional hardship for rural families and lost jobs due to the closure of a market representing more than 50% of total live cattle export [Wellard, 2010]. Although the ban was lifted a month later, the effect of it catastrophic, and even resulted in families selling their
Trade policies are developed by foreign and domestic governments in an effort to influence net imports or net exports (Cengage, 2009). Two common policies are the use of tariffs and import quotas. As XYZ expands into Asia, Mexico and Canada it will want to factor the costs of tariffs and the possible effects of the limitations of import quotas. What is interesting is that the basic premises of supply and demand, imports and exports, equilibriums and trade balances are all meant to lead to an efficient market place (Cengage, 2009). Tariffs, wage restrictions, quotas and other such policies can create inefficient markets. So XYZ will have to take the basic study of economics and then apply the effects of various trade policies and restrictions. Another factor of government that influences the
The article written by Lucy Craymer, US Demand lifts Australian beef prices 40pc, discusses the resulting effects on the Australian and New Zealand beef industry due to the demand by the US. Due to the droughts in the US, it has greatly impacted the supply of cattle available, and due to the US accounting for 25% of the world’s beef consumption, this is forcing them to import beef from other countries such as Australia and New Zealand. Overall, this has allowed cattle exporters to increase their beef prices by 40 percent since last year. So far this year, the US exports have brought in approximately $US1.11 billion. The farmers are greatly benefitting from the US demand, selling at premium prices and gaining substantial
Since 2012, Australia has maintained a mostly negative trade balance, perhaps amid uncertainty of its currency against the US dollar, but more likely is its economic growth is causing it to import more and more petroleum products which it’s exports of its own natural resources is not able to match.
One of the most powerful propositions of classical trade theory is that the pattern of international trade is determined by comparative advantage. That is, a country with the comparative advantage in a given commodity exports, and the other with the comparative disadvantage imports. Adam Smith has founded the comparative advantage originates theory, and there have been numerous attempts to identify the economic conditions that determine comparative advantagelet us began with Adam Smith theory, and then we will discuss one correction of this theory was founded by Palley’s (2008), which is an observation the modern view of comparative advantage.
a. How does the theory of comparative advantage explain why a developed country such as the USA might wish to trade with a developing country such as Vietnam? 
To elaborate on the points made above it’s essential to consider the theories of international trade, as comparative advantage is an important concept for explaining pattern of trade. David Ricardo firstly introduces the concept of comparative advantage. It is then well recognized as the Ricardian model. In the neoclassical theory of international trade, Heckscher and Ohlin examine the effect of different
International trade theories explain international trade patterns. Academics see trade as the interdependence of states through the exchange of capital, goods, and services. International trade has existed for thousands of years in the world. Its economic, political and social influence in the world has begun rise. However, new trade theories include Porter 's diamond national competitive advantage which focuses on modern trade concept. This paper will discuss Porter 's diamond national competitive advantage and the extent to which their link to the new trade theories contrast with the neoclassical view of trade. The author will then discuss how government policies could influence trade pattern.
The theory of comparative advantage is perhaps one of the most important concepts in international trade theory.