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Introduction to Trade
Here, trade involves the transfer of goods and services from one person or entity to another. Countries can increase their income by specializing in production and trade with other countries.
When Countries do not have the resources or the capacity to satisfy their own needs and desires, they trade with each other. By developing and exploiting their scarce domestic resources, countries can produce a surplus and exchange it for the resources required.
Benefits of Trade
International trade brings valuable benefits to a country, including:
- Firstly, trade encourages a country to specialize in producing the goods and services it can have most effectively and efficiently.
- Secondly, Producing a limited range of goods and services for domestic and export markets means a country can make in larger volumes, providing additional cost advantages in terms of economies of scale.
- Trade increases competition and lowers world prices, bringing benefits to consumers by increasing the purchasing power of their income and leading to an increase in consumer surplus.
- Trade also breaks up domestic monopolies, which compete with more efficient foreign firms.
- Besides, the quality of goods and services will likely increase as competition encourages innovation, design and application of new technologies. Trade also promote the transfer of technology between countries.
- And also, Trade is likely to increase employment since employment is closely linked to production. Trade means that more jobs will be employed in the export sector, and, through the multiplier process, more jobs will be created throughout the economy.
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