International trade - trading between countries.- most obvious reason is that different countries have different factor endowments and that international mobility of these factors is severelly limited.
REASON FOR INTERNATIONAL TRADE1. The diversity in conditions- trade may take place because of the diversity in conditions of production among countries.2. Return to scale- because of increasing returns to scale.3. Tastes of goods- countries might engage in trade if their tastes for goods were different.
ADVANTAGES• increase world output• variety of goods & services• higher income & economic growth• improved relationship• sharing technology and information• efficiency and cost effectiveness
DISADVANTAGES• economic interdepence• political interdepence• deplate a nation reserve
PROTECTIONISM• to protect infant industries• to protect against unfair trades• to protect domestic employment• industrial diversification• source of government revenue• to protect strategic goods
• THE ABSOLUTE ADVANTAGE- the production of a commodity when it is more efficient than the other country at producing commodity- when it can produce more of a commodity than the other country using the same amount of resources.
• THE COMPARATIVE ADVANTAGE- a country should specialize in the production of goods or services in which the country has a greater comparative advantage or lower opportunity cost and imports the commodity where the opportunity cost is higher or comparative advantage is less.