Benefits of international trade unit 4.1

The benefits of international Trade

1. economies of scale

2. availability of goods and services

3. increased competition

4. lower prices

5. productive efficiency

6. allocative efficiency

7. learning

8. access to markets

9. production costs

10. source of foreign exchange

economies of scale

Because firms can increase sales by exporting to international markets, they can increase production and achieve economies of scale. As a result, the price per unit of production will fall as it increases its scale of production having to meet the world demand.

availability of goods and services

Consumers and businesses can access goods and services that cannot be produced domestically

increased competition

As markets became more open over time, the volume of world trade has increased, and more businesses enter the market, making it more competitive.

→ This benefits consumers as more market competition reduces prices and offers them a greater variety

→ this links to lower prices

productive efficiency

motivation for domestic producers to be more productively efficient, as foreign competition likely will encourage them.

→ encourages all producers involved in international trade to try to produce at the lowest possible cost per unit to make them competitive.

allocative efficiency

international trade allows countries access g/s that they are relatively inefficient at producing.

learning

firms involved in international trade can gain and adopt production techniques of foreign 1

access to markets

export markets offer firms a huge increase in potential revenues compared to selling only in their domestic markets.

example: Tesla

production costs

as some countries do not have access to necessary inputs such as raw materials, they may relay for access from other countries, import is essential.

→ being able to do it at a lower cost allows them to sell more cheaply

source of foreign exchange

For many developing countries, trade is a crucial source of foreign currency