Global Economy and International Trade

UNIT 4: GLOBAL ECONOMY

4.1: BENEFITS OF INTERNATIONAL TRADE

Chapter 23: WHY DO COUNTRIES TRADE?
BENEFITS OF INTERNATIONAL TRADE

  1. Lower Prices:

    • Allows consumers and manufacturers to purchase goods at cheaper rates.

    • Reasons for lower prices:

      • Access to natural resources

      • Differing labor standards and practices

      • Varying levels of technology

    • Drawback: Concerns about the implications of cheaper prices and goods.

  2. Greater Choice:

    • International trade allows for a greater choice in products from other countries.

  3. Differences in Resources:

    • Countries possess different resources (including manufactured goods).

    • Example: The United States trades materials it possesses for materials it needs from other countries.

  4. Economics of Scale:

    • As the market/demand for a product increases, so does the efficiency of the system used to produce it.

    • The production scale increases, shrinking the focus of individual workers.

    • Workers become efficient by focusing on a single task.

    • Increases competition and can reduce average costs.

  5. Increased Competition:

    • Domestic markets will try to compete with international markets.

    • Benefits:

      • Increased product quality as producers compete with better products.

      • Cheaper products to entice consumers, resulting from a more efficient system.

  6. More Efficient Allocation of Resources:

    • Countries that are best at producing something will do so at the lowest cost possible to increase their profit margins.

    • Important: This assumes no government interference in the economic process.

    • With free trade, resources are used efficiently (no wasted materials, better transport, etc.). Otherwise, it is a waste of money and time.

  7. Source of Foreign Exchange:

    • If a country is trading with a foreign entity, then it is receiving foreign currency.

    • Important for smaller and poorer nations that cannot use their currency in the international market.

    • Those countries must first trade to acquire foreign currency and then use it to purchase other products or materials.