Why do countries trade

Why do countries trade

The gains from international trade	International trade is the exchange of goods and services between countries. Gains: 1. lower prices 2. greater choice 3. Differences in resources- some countries need the natural resources to make goods or for survival 4. economies of scale- when there is international trade there is a larger market thuse level of prod. will increase 5. increased competition- leads to greater efficiency 6. More efficient allocation of resources 7. source of foreign exchange
Comparing advantage theory	Absalute advantage- Production of a good if it can prodiuce it using fewer resoucres than another country. Comparative advantage- If a country can produce a good at a lower opp. cost than another country
What gives a country a comparative advantage	Utilizing a countries untapped abundant recources
Limitations	1. It is assumed there is perfect knowledge 2. assumed there is no transport costs 3. assume that there are only 2 economies producing 2 goods 4. assumed that costs fo not change with economis or diseconomies of scale 5. goods traded are assumed to be identical 6. factores of production stay in country 7. assumed there is perfect free trade
The world trade organiaztion (wto)	40- 4 % Golbal trade organization
Aims of the WTO	Lower trade barriers and provide forum for negotioation - admin. wto trade agreements - be a forum for negotiation - handle trade disputes - monitor trade policies - provider assistence and training for developing copuntries - coop with other countries