Theories of International Trade
There are many reasons why countries trade among each other. One of the important reasons is that it allows countries to specialise in the goods and services in which they are more efficient when compared to other countries.
a) The Principle Of Absolute Advantage
For simplicity, let us assume that there are only two countries, A and B, with each country possessing a basket of resources which can be used to produce two goods, rice and corn.
Country
Rice
Corn
A
B
100
50
150
A + B
200
Country A is more efficient in the production of rice while Country B is more efficient in corn production.
Now, if trade is possible between these two countries, each will tend to specialise in the commodity in which it is more efficient.
After complete specialisation we obtain the following result:
0
300
As seen above, after complete specialisation, total output has increased. In order to benefit from specialisation, the rate of exchange must be beneficial to both countries. It must lie between the opportunity cost of producing the product in each country for it to be favourable to both.
After the specialisation and the trade at = _________________
120
80
220
It is clear from the table above, that both countries are better off than when they were self-sufficient.
b) Principle of Comparative Advantage
This principle states that even where one country has an absolute advantage over the other country in products, specialisation and trade can still benefit both countries, if each has a comparative cost advantage. This comparative cost refers to the opportunity of producing the products.
60
210
180
For country A has an absolute advantage in the production of rice and corn. For Country A, the opportunity costs of producing 1 unit of rice is _________________________ units of corn.
For Country B, the opportunity cost of producing 1 unit of rice is _________________ units of corn.
In terms of the units of corn forgone, rice production is cheaper in Country __________ than in Country ___________ Country has a comparative advantage in rice production.
If Country ______________ were to specialise completely in _______________ production and country _____________ to partially specialise in _________, total output will increase.
After specialisation:
255
30
160
190
Thus, it can be seen that there is still a gain from specialisation.
Email based economics assignment help - homework help at TutorsGlobe
Are you searching economics tutor for help with Theories of International Trade questions? Theories of International Trade topic is not easier to learn without external help? We at www.tutorsglobe.com offer finest service of economics homework help and economics homework help. Live tutors are available for 24x7 hours helping students in their Theories of International Trade related problems. We provide step by step Theories of International Trade question's answers with 100% plagiarism free content. We prepare quality content and notes for Theories of International Trade topic under economics theory and study material. These are avail for subscribed users and they can get advantages anytime.
Why TutorsGlobe for homework help
tutorsglobe.com hemoglobin buffer system assignment help-homework help by online buffers tutors
the basic gates are - not gate, and gate, or gate, nand gate, nor gate, xor gate, xnor gate.
tutorsglobe.com transgenic organisms assignment help-homework help by online modern genetics tutors
www.tutorsglobe.com offers requirement elicitation homework help, assignment help, case study, writing homework help, online tutoring assistance by computer science tutors.
tutorsglobe.com plasmodesmata assignment help-homework help by online cell wall tutors
Secure top grades with Fractal Assignment Help service offered by 24x7 available PhD experts at pocket-friendly prices.
www.tutorsglobe.com offers biophysical chemistry homework help, biophysical chemistry assignment help, online tutoring assistance, physical chemistry solutions by online qualified tutor's help.
tutorsglobe.com streptococcus pyogenes assignment help-homework help by online medical bacteriology tutors
Just the once the company has made its primary share issue to begin business (generally soon after the company is first created) it might decide to make additional issues of new shares.
Natural Cycles and Atmospheric Chemistry all along with the key concepts of significant depletion of ozone, Antarctic stratosphere, Acid precipitation
www.tutorsglobe.com offers nomenclature ethers functional group reactions homework help, assignment help, online tutoring assistance, and organic chemistry solutions by online qualified tutor's help.
www.tutorsglobe.com offers energetics homework help, energetics assignment help, online tutoring assistance, physical chemistry solutions by online qualified tutor's help.
tutorsglobe.com immobilization assignment help-homework help by online industrial microbiology tutors
tutorsglobe.com plasmolysis assignment help-homework help by online absorption and movement tutors
Chromosome Theory of Inheritance tutorial all along with the key concepts of Deduction of Chromosome Theory of Inheritance, Comparison of Development in Two Dispermic Embryos, Support of chromosome Theory
1962017
Questions Asked
3689
Tutors
1445881
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!