This ppt elaborates concepts regarding international trade and its theories. 5 theories have been discussed here including Mercantilism, Theory of absolute advantage & Comparative Advantage, Factor Proportions Theory, and Product Life Cycle theory. #trade #tradetheory #ComparativeAdvantage #AbsoluteAdvantage #productlifecycle

1. INTERNATIONAL TRADE
TYPES
ADVANTAGES
DISADVANTAGES
BARRIERS

2. • International trade is the exchange of goods and services between countries and it lets the economy grow
globally and improve the living standards of people.
• If you walk into a supermarket and find Brazilian coffee or you are planning to purchase an iPhone, you are
experiencing the effects of international trade.
INTERNATIONAL TRADE
WHY COUNTRIES TRADE ?
when they don’t have enough resources to meet the domestic demand.
They can expand their local market and export the surplus in international market.
International trade provides greater choice for consumers and helps global growth and economic development.

3. THREE TYPES OF INTERNATIONAL TRADE:
BARRIERS TO INTERNATIONAL TRADE:
Cultural & Social Barriers
Political Barriers
Tariffs & Trade Restrictions
Boycotts
Imports & Export Licenses

4. ADVANTAGES VS DIADVANTAGES
Optimal Use of Available Resources
Utilization of Surplus Production
Variety of Goods Available
Speedy Industrialization
Technology Transfer
Stability in Prices
Exhaustion of Resources
Effect on domestic industries
Shortages in domestic market
Hardships in times of War
Economic dependence
Threat to national security

5. THEORIES OF INTERNATIONAL TRADE
MERCANTILISM
THEORY OF
ABSOLUTE
ADVANTAGE
THEROY OF
COMPARATIVE
ADVANTAGE
PRODUCT LIFE
CYCLE THEORY
FACTOR
PROPORTIONS
THEORY

6. MERCANTILISM (MID- 16TH CENTURY)
THIS THEORY PROMOTED:
• Imperialism
• Tariffs
• Subsidies
• Militarism
A nation’s wealth depends upon accumulated treasure.
Gold and silver were currency trade that time.
A nation should accumulate wealth in the form of gold and silver by encouraging exports and
discouraging imports.

7. THEORY OF ABSOLUTE ADVANTAGE
Absolute advantage is a country’s ability to produce a good or service more efficiently than its
competitors. It refers to the superior production capabilities in a single area.
Country B has an absolute
advantage over country A in
producing both Cars & Bikes.
LABOR HOURS
(For producing one unit)
CARS BIKES
Country A 10 5
Country B 8 2

8. THEORY OF COMPARATIVE ADVANTAGE
A country has a comparative advantage over another when it can produce a good or
service at a lower opportunity cost.
Country A has a comparative advantage in producing cars, while country B has a comparative
advantage in producing bikes.
LABOR HOURS
(For producing one unit)
CARS BIKES
Country A 10 5
Country B 8 2
OPPORTUNITY COSTS
(For producing one unit)
CARS BIKES
Country A 2 Bikes 0.5 Cars
Country B 4 Bikes 0.25 Cars
ABSOLUTE ADVANTAGE COMPARATIVE ADVANTAGE
vs

9. FACTOR PROPORTIONS TRADE THEORY
A country that is relatively labor abundant (not capital) should specialize in the production and
export of those products which are relatively labor intensive and should import those products
which are capital intensive.
The theory focuses on two important factors of production:
 Labor
 Capital

10. PRODUCT LIFE-CYCLE THEORY
Refers how a product evolves over time and across national borders.

11. THANK YOU
Watch Video Tutorials for Complete Understanding
https://youtu.be/aLq-lg1GfEc
https://youtu.be/0f_A0j2J5GE