advantages of trade

advantages of trade

1. exports

2. access to imports for consumers

3. specialisation

4. technological spread

5. increased competition

6. economics of scale

exports

there is an increase in exports which will shift AD to the right and increase real GDP, this will reduce unemployment and increase incomes

access to imports

consumers can import which gives them more choice, this will give them access to lower prices and higher quality, this will increase welfare and living standards

specialisation

producing a narrow range of goods and services

countries can import rather than needing to be self sufficient, this allows countries to specialise where they have comparative advantage

goods are then produced by the countries best suited for those goods and there is more efficient allocation of global resources

technological spread

easier to import new goods and services which means new capital can be spread more to other countries

this can be used for more efficient production and supports short and long run growth

increased competition

consumers can import from around the world which pressures domestic firms to lower prices

lower prices for consumers and potentially higher quality which will increase living standards (and long run growth)

economies of scale

exporting firms can be larger and as firms become larger they access economies of scale

this will reduce their costs and lower prices for consumers and increase their living standards