Economics Study Set 20

Business

Quiz 18 :
Gaining From International Trade

bookmark
Unbookmark

Quiz 18 :
Gaining From International Trade

Trade is one of the most important sources of growth. Trade helps the economy to specialize in what they produce more efficiently and allow them to sell it to the customers who valued them most. This ensures lower cost of production and higher profit margins. Trade also enables the economy to consume beyond its productive capacity. Hence, trade increases country's income and ensures faster growth. Trade restriction is the obstacle to free trade in terms of tariff, quota and other barriers to trade. These trade barriers act against the benefit of free trade. The trade barrier generates losses to the society and retard economic growth. The trade does not destroy jobs and neither protects the domestic industry from loss in the long run. The citizens of any country buy goods from foreigner because they are cheaper in the international market than in the domestic market. The country exports those goods which are relatively cheaper to produce in home market than in other countries. The country imports such goods which are relatively less cheap to produce in the home country. This means that a country produces those goods which are relatively cheaper to produce and exchange these goods in international market for other goods that are relatively expensive to produce.

Trade is one of the most important sources of growth. Trade helps the economy to specialize in what they produce more efficiently and allow them to sell it to the customers who valued them most. This ensures lower cost of production and higher profit margins. Trade also enables the economy to consume beyond its productive capacity. Hence, trade increases country's income and ensures faster growth. Trade restriction is the obstacle to free trade in terms of tariff, quota and other barriers to trade. These trade barriers act against the benefit of free trade. The trade barrier generates losses to the society and retard economic growth. The trade does not destroy jobs and neither protects the domestic industry from loss in the long run. Trade restriction creates losses to the society. If the foreigner cannot sell their product, they cannot acquire the home currency needed to buy the home products. This hurts the export sector. The export producing industry experiences falling profit and decrease in employment. Although, protection retains the jobs in import competing sector, the employment in export sector decreases due to protection. On the other hand, if any industry buys the input from foreigners, the protection increases the price of these inputs. The cost to the industry increases and they lose their competitiveness in global market. For all these reason, the trade restriction is not at all desirable to protect the prosperity of a nation.

Trade is one of the most important sources of growth. Trade helps the economy to specialize in what they produce more efficiently and allow them to sell it to the customers who valued them most. This ensures lower cost of production and higher profit margins. Trade also enables the economy to consume beyond its productive capacity. Hence, trade increases country's income and ensures faster growth. Trade increases the income of the residents of a country and accelerates the growth rate. The country can benefits from trade by: • Specializing in the production of low cost good and exchange them for a good that has higher production cost domestically. This allows the country to allocate their resources in more productive industry and achieve production efficiency. • Allowing the consumer to get higher amount different products in lower cost that would not have been possible without trade. Then, trade permit consumption efficiency by increasing consumer surplus. • Allowing the country to consume at a point beyond PPF, this means the consumer welfare and income of the country increases. • Providing the foreigner the purchasing power needed to consume domestic goods. Any barriers to free trade reduce the benefits stated above. The barriers in this were give rise to loss and retard growth. The barriers to trade in the divided US will thus reduce the benefits flow from trade and will reduce the rate of growth of both of the economies. The decrease in rate of growth rate will decrease per capita income. Lowering the per capita income means lower standard of living for both the economies.

Related Quizzes