International Trade and Money summary [211581]2023International Trade and Money summary [211581]2023

The Benefits of Trade - -1. increases in domestic production and consumption as a result of specialization 2. economies of scale in production 3. greater choice for consumers 4. increased competition and greater efficiency in production 5. lower prices for consumers 6. acquiring needed resources 7. free trade and a more efficient allocation of resources 8. source of foreign exchange 9. the flow of new technology and ideas 10. countries become interdependent (reduces the possibility of war) 11. trade as an "engine for growth" -The theory of absolute advantage - -If countries specialize and export the good in which they have an absolute advantage (the ability to produce using less resources than another country) the result is increased consumption and production in each country. -The theory of comparative advantage - -A country has a comparative advantage in the production of a good when this can be produced at a lower opportunity costs than its trading partner. The law of comparative advantage says that, as long as opportunity costs in two (or more) countries differ, it is possible for all countries to gain from specialization and trade according to their comparative advantage.