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International trade

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International trade

  1. 1. INTERNATIONAL TRADE
  2. 2. International trade - trading between countries.- most obvious reason is that different countries have different factor endowments and that international mobility of these factors is severelly limited.
  3. 3. REASON FOR INTERNATIONAL TRADE1. The diversity in conditions- trade may take place because of the diversity in conditions of production among countries.2. Return to scale- because of increasing returns to scale.3. Tastes of goods- countries might engage in trade if their tastes for goods were different.
  4. 4. ADVANTAGES• increase world output• variety of goods & services• higher income & economic growth• improved relationship• sharing technology and information• efficiency and cost effectiveness
  5. 5. DISADVANTAGES• economic interdepence• political interdepence• deplate a nation reserve
  6. 6. PROTECTIONISM• to protect infant industries• to protect against unfair trades• to protect domestic employment• industrial diversification• source of government revenue• to protect strategic goods
  7. 7. TRADE OF BARRIERS• TARIFF• EXPORT SUBSIDIES• GRANT• QUOTA• EMBARGO• EXCANGE CONTROL• IMPORT LICENCES
  8. 8. • THE ABSOLUTE ADVANTAGE- the production of a commodity when it is more efficient than the other country at producing commodity- when it can produce more of a commodity than the other country using the same amount of resources.
  9. 9. • THE COMPARATIVE ADVANTAGE- a country should specialize in the production of goods or services in which the country has a greater comparative advantage or lower opportunity cost and imports the commodity where the opportunity cost is higher or comparative advantage is less.

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