The Rise Of Free Trade

Absolute advantage is when a country produces more of a certain good and less of another good using the same amount of resources. Countries that practice this method are able to take advantage of an economic opportunity that allows them to work more efficiently. For example if two countries agree to import/export for maximum output it creates an absolute advantage to both parties. The U.S can produce more wheat than China, and China can turn around and produce more electronics than the U.S. This occurs because electronic products are cheaper and are now manufactured in China. The factories are bigger and work faster in terms of demand than those in the U.S. There are countries with environmental limitations and are not able to produce crops,

Absolute advantage is when an industry in a country can produce a product more than other countries with the same resources. Comparative advantage is when an industry in a country can make a product at a lower opportunity cost than other countries. Opportunity cost is when giving up the second best choice when making a decision.

As most already know, the Swiss are renowned for their production of high quality chocolates including those of the Toblerone and Lindt brands. “Switzerland has a comparative advantage in the production of chocolate. By spending one hour producing two pounds of chocolate, it gives up producing one pound of cheese, whereas, if it spends that hour producing cheese, it gives up two pounds of chocolate. Thus, the good in which comparative advantage is held is the good that the country produces most efficiently (chocolate). Therefore, if given a choice between producing two goods (or services), a country will make the most efficient use of its resources by producing the good with the lowest opportunity cost, the good in which it holds the comparative advantage, and by trading for the other good.” (Globalization101.org, 2010)

Pretend for a moment that you are much better than your best friend at chopping pineapples and at waxing surfboards for tourists. Economically speaking, you are said to have the absolute advantage over your friend because you are better at both tasks.  An easy way to identify absolute advantage is to see who can produce the most of a good or who can do it in the fastest time as we see in this example.  Absolute advantage is when some individual, group, or country has the ability to produce a product more efficiently than another individual, group, or country.  

Now, say that you and your best friend opened a fruit and surf stand on the local beach. There are two tasks that need to be completed: waxing surfboards for the surfers who stop by and chopping pineapples for a refreshing snack for people at the beach. While you might be better at both jobs, you can still get the work done quicker if you each take on one of the tasks. The question is: who waxes the boards and who chops up the pineapples? Let’s say:

In this I am going to assess the methods to increase trade between countries and the methods to restrict trade between countries. When asses the methods of encouraging and restricting trade I will talk about the purpose for the methods of promoting and restricting international trade, identify how and why they might be used and I will decide how useful each method is giving appropriate reasons for it. International trade is the exchange of goods and services between countries.

Italy’s maximum outputs are wine 1,000 and tables 200; whereas Greece’s maximum outputs are wine 200 and tables 100. In the production of wine and tables Italy has absolute advantage over Greece; which can be concluded that Italy can produce wine and tables more efficiently than Greece. The production possibility for wine is Italy 1,000 and Greece 200 or 20 percent and for tables Italy 200 and Greece 100 or 50 percent. When comparing the production possibilities of wine and tables in comparative advantage it can be concluded that Italy has a comparative

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.

A country is said to be more productive than another country, if it can produce more output (goods) for a given quantity of input, such as labour or energy inputs. An example is that there are only two countries, Australia and Japan. They both produce computers and wine, and only one factor of production, labour. Japan produces 6 computers for every 1 bottle of wine, where as Australia produces only 4 computers for every 3 bottles of wine. This suggests that Australia should export some of its wine to Japan, and Japan should export some of its computers to Australia. Australia has an absolute advantage over Japan, when producing wine, and Japan has an absolute advantage over Australia, when producing computers (Gandolfo, 1998).

Comparative advantage is a little trickier. Here you have to do the math or analyze which country or company has the best opportunity cost. In other words, in order for a country or company to have a Comparative advantage, their production goods have to be produced at a lower opportunity cost relative to another company or country.

When we look around our homes we tend to forget that the items we have purchased often are items we as a country have received from other countries. We forget that the clothes we are wearing may have come from China or the TV we are watching our favorite shows on came from Japan. International trade has advantages and disadvantages for everyone involved. It wasn’t that long ago that the items we owned only came from within our own country. So why is it that international trade exists and what advantages does this bring to a developed country and what advantages does this bring to a developing country? International trade also has its downfalls. In the following assessment I will look at both the advantages and disadvantages of international trade and how we, as a developed country, are using trade to help developing countries become less dependent on aid to fund development projects in utilizing programs such as Aid for Trade.

Absolute advantage is the theory that a nation specializes in something that it is most efficient at producing. Absolute advantage is based on productivity. Nation that can produce a good and require the least quantity of input is considered to have an absolute advantage. On the other, comparative advantage is based on opportunity cost. Even though that nation may not have the absolute advantage, it still can produce the good if it has the lowest opportunity cost as compared to another nation.

The efficiency of resources allocation is improved by the free international trade, as the higher productivity and increasing in total domestic output of commodities and services are

For example, the European States specializing more in clothing and the United States specializing more in food. Prior to this, the outcome occurs because in these two nations, each concentrates more fully on producing those goods that each produces comparatively efficiently—that is, efficiently compared with others. So therefore, the principle of comparative advantage introduced international trade.

There is no unique definition for free trade. In theoretical terms, it articulates the non-existence of artificial impediments pertaining the exchange of goods across national markets. Plus, the similar prices met by domestic and international producers and consumers regarding transportation and other transaction costs (Irwin). Conversely, in practical terminology, free trade is the nation-state policy towards international commerce; promoting the absence of barriers and eradicating the restrictions imposed on the importing and exporting of goods between countries and

Free trade is a policy that is followed by international markets in which those countries governments do not restrict imports or exports. Free trade generally includes the trade of goods without taxes or tariffs, free access to markets, trade agreements, and the inability to interfere with markets through a government enacted monopoly or oligopoly power. This paper will look at how free trade came about and the unequal benefit between nations in the system of free trade.