Chapter 10, Problem 1QE

To determine

Importance of international trade for economy.

Explanation of Solution

International trade is the exchange of goods and services between the countries. The international trade is very important for an economy as the international trade is based on the comparative advantage which states that the economy should focus on the production of goods and services in which the economy has lower opportunity cost of production. The economies engage in trade with other economies to get the products in which it has comparative disadvantage.

In case of the US economy, the trade is not much important for the economy. This is because the US economy produces most of the goods and services required for the economy. Thus, the international trade shares for goods and services in the US economy are relatively small when compared to other economies. Thus, the trade is less important to the US economy and thus, the trade policies are less important.

Economics Concept Introduction

International trade: International trade is the exchange of goods and services between the international borders. Thus, the sellers and buyers will be different countries under the international trade.