Take Home TEST due Tuesday, 11/20 at the beginning of class ~
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Advantages of Specialization and International Trade
Just as domestic trade promotes growth and prosperity, so too does international trade. International exchange allows for specialization, which is when one producer produces the good that comes at the least cost of production and opportunity to him or her and then trades for those goods that come at a higher production or opportunity to him or her. The law of comparative advantage explains how people can gain from trade and specialization. Comparative advantage is defined as the ability to produce a good at a lower opportunity cost than others can produce it. Therefore, specializing gives that country a comparative advantage over others. Not only does international trade lead to mutual gains by allowing different countries to specialize in the production of those things they do best, but it also allows them to import goods that foreign producers are willing to supply at a lower cost than domestic producers. Resources and such differ from country to country and give some countries an advantage to producing some goods over others and prove to be more profitable and advantageous to all. By allowing for international trade, countries can specialize in those goods that they can produce most economically and them offer them to consumers at a cheaper, more affordable, and more economical price. In addition, by importing those goods from other countries and then exporting goods to those other countries, everybody gains in a win-win situation.
It is important to note, however, the instance of absolute advantage. Absolute advantage is a situation in which a nation, as a result of its previous experience and/or natural endowments, can produce more of a good, with the same amount of resources, than another nation. Yet, this does not mean that just because one nation has an absolute advantage that the countries cannot still gain from trade for the answer is yes. They can, in fact, still gain as long as the relative production costs differ.
It is quite obvious that trade is advantageous to all parties. It allows for specialization and comparative advantage, both of which lead to economic gains, growth, and success. Moreover, these two concepts are great contributors to the advanced state of the world's countries today. Without them, we would most definitely still be centuries behind in many ways, especially technologically. Engaging in these activities proves advantageous for all and leads to economic wealth and prosperity, thereby, increasing the standard of living of citizens.
It is important to note, however, the instance of absolute advantage. Absolute advantage is a situation in which a nation, as a result of its previous experience and/or natural endowments, can produce more of a good, with the same amount of resources, than another nation. Yet, this does not mean that just because one nation has an absolute advantage that the countries cannot still gain from trade for the answer is yes. They can, in fact, still gain as long as the relative production costs differ.
It is quite obvious that trade is advantageous to all parties. It allows for specialization and comparative advantage, both of which lead to economic gains, growth, and success. Moreover, these two concepts are great contributors to the advanced state of the world's countries today. Without them, we would most definitely still be centuries behind in many ways, especially technologically. Engaging in these activities proves advantageous for all and leads to economic wealth and prosperity, thereby, increasing the standard of living of citizens.
chap02_comparative_advantage.ppt | |
File Size: | 978 kb |
File Type: | ppt |
Article to read BEFORE taking the test
exchange_rates_and_exchange_how_money_affects_trade_print_version__econedlink.mht | |
File Size: | 107 kb |
File Type: | mht |
Click below to open Take home test questions.
Test due Tuesday, 11/20 at the beginning of class.
test_-_comparative_advantage_and_foreign_exchange_rate.doc | |
File Size: | 25 kb |
File Type: | doc |