The gains from specialization and trade are based on comparative advantages, whi
ID: 1213195 • Letter: T
Question
The gains from specialization and trade are based on comparative advantages, which reflect the relative opportunity costs of production. When countries specialize in producing goods and services for which they have comparative advantages, total production in the global economy rises. Trade advocates argue that this increase in the size of the economic pie can be used to make all trading countries better off through international trade. Economists also use the principle of comparative advantage to advocate free trade among countries as a better policy.
Does free trade contribute to the improvement of economic well-being? How does trade stimulate long-term economic growth? Explain.
Who gains and losses from free trade among countries, and how do the gains compare to the losses? Explain using examples.
Do you think the U.S. export and import of goods and services are based on the principle of a comparative advantage of trade? Explain.
Why do countries impose trade restrictions on goods and services they import from other countries? What are the pros and cons of trade protectionism?
Explanation / Answer
Free trade is a prerequisite for international trade to be emerged in world. Without free trade and lack of tariff and non tarriff restrictions internatioanl trade will not take place. Because of free trade following contributions are made to economic well being of participating nations. 1. Specialization : As free trade will prevail countries will produce their specialized products only which will reduce cost and improve quality. Optimum allocation of resources: As in free trade nations will produce those goods only in which the possess specialization then optimum allocation of scarce resources will take place to which wastage of resouces will not take place. 3.More product base: Consumers will have more product base o enjoy. 4. Economies of scale will acheive if countries will produce specialized products only. 5. International peace will be promoted because of international rade agreements.
Exporters, international traders, consumers will gain from free trade. exporters and international traders will have access to new markets, healthy competition and huge profitys. Consumers will have larger product base, more bargaining powers, lesser prices.
Domestic traders will suffer loss beacuse of low quality, marginal size of firms, poor techniques and styiff competition from rest of world.
US is a developed economy that is industrial and service oriented. It exports the products that are industrial goods and imports primary goods in which it lacks specialization. Hence US trade is based on specialization.
trade resv ictions are imposed to provide safety to domestic industries that are not enough competitive a worl stage. Also to have lesser degree of dependence from other countries a country also imposes restrictions on trade.
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