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The economic gains from expanding international trade are measured in hundreds of billions of dollars, and the gains from international trade as a whole probably reach well into the trillions of dollars. The potential for gains from trade may be especially high among the smaller and lower-income countries of the world.

Visit this website for a list of some benefits of trade.

From interpersonal to international trade

Most people find it easy to believe that they, personally, would not be better off if they tried to grow and process all of their own food, to make all of their own clothes, to build their own cars and houses from scratch, and so on. Instead, we all benefit from living in economies where people and firms can specialize and trade with each other.

The benefits of trade do not stop at national boundaries, either. Earlier we explained that the division of labor could increase output for three reasons: (1) workers with different characteristics can specialize in the types of production where they have a comparative advantage; (2) firms and workers who specialize in a certain product become more productive with learning and practice; and (3) economies of scale. These three reasons apply from the individual and community level right up to the international level. If it makes sense to you that interpersonal, intercommunity, and interstate trade offer economic gains, it should make sense that international trade offers gains, too.

International trade currently involves about $20 trillion worth of goods and services moving around the globe. Any economic force of that size, even if it confers overall benefits, is certain to cause disruption and controversy. This chapter has only made the case that trade brings economic benefits. Other chapters discuss, in detail, the public policy arguments over whether to restrict international trade.

It’s apple’s (global) iphone

Apple Corporation uses a global platform to produce the iPhone. Now that you understand the concept of comparative advantage, you can see why the engineering and design of the iPhone is done in the United States. The United States has built up a comparative advantage over the years in designing and marketing products, and sacrifices fewer resources to design high-tech devices relative to other countries. China has a comparative advantage in assembling the phone due to its large skilled labor force. Korea has a comparative advantage in producing components. Korea focuses its production by increasing its scale, learning better ways to produce screens and computer chips, and uses innovation to lower average costs of production. Apple, in turn, benefits because it can purchase these quality products at lower prices. Put the global assembly line together and you have the device with which we are all so familiar.

Key concepts and summary

Tariffs are placed on imported goods as a way of protecting sensitive industries, for humanitarian reasons, and for protection against dumping. Traditionally, tariffs were used as a political tool to protect certain vested economic, social, and cultural interests. The WTO has been, and continues to be, a way for nations to meet and negotiate through barriers to trade. The gains of international trade are very large, especially for smaller countries, but are beneficial to all.

Problems

If trade increases world GDP by 1% per year, what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint : To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount the additional increase in global incomes due to trade and compare that number to Sri Lanka’s GDP.

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References

World Trade Organization. “The Doha Round.” Accessed October 2013. http://www.wto.org/english/tratop_e/dda_e/dda_e.htm.

The World Bank. “Data: World Development Indicators.” Accessed October 2013. http://data.worldbank.org/data-catalog/world-development-indicators.

Questions & Answers

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1- how to determine the optimal level of output and price in the short run? 2-how to calculate the economic profit (loss) the firm will obtain(incure)in monopolistic competition faces short run demand and cost functions as Qd=20-0.5P and TC=4Q -8Q+15
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In Accounting, asset is anything that is owned by the business.
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Discuss the following questions in detail. 1, Suppose a firm operating under a perfectly competitve market structure is in its equilibrium. Does mean the firm is making excess profit?if no, show the possibilities regarding the amount of profit under equilibrium position. 2, Discuss the distinction b
Sura Reply
in long run a perfectly competitive firm is making only normal profits ,
Rather
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James
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Rather
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Jnana Reply
Workout. Show the steps clearly. 1, Suppose a firm in a perfectly competitive market structure has the following total cost function, ( TC=6000+4Q-24Q the power 2 + 4Q the power 3 ) if market ptice is 40, find A, Equilibrium level of output produced by the firm in order to maximize its profit. B,
Sura Reply
Discuss the following questions in detail. 1, Suppose a firm operating under a perfectly competitve market structure is in its equilibrium. Does mean the firm is making excess profit?if no, show the possibilities regarding the amount of profit under equilibrium position. 2, Discuss the distinction b
Sura
given the dimand equation QD=24-2p find the inverse dimand equation ?
Kadir Reply
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Raj
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Raj
giveTc 10=+6Q-0 ,9Q2+0.05Q3 then calculated the following Tvc Avc ATC MC and AFC
Kadir
answer
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shift in demand curve
Adeoye Reply
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Oluyemi
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dipanshu
why in monopolistic competition the demand curve shifts to the left
Wani Reply
Because the players are few and due to the fact that their products are differentiated, they have market influence on either price to be charged or quantity to be offered to the market
Diyaolu
given Tc=10 +6Q-0,9Q2+0,05Q3 what is Tvc ? ATc ? mc?
Kadir Reply
Tvc=6q-0.9q2+0.05q3
Diyaolu
Atc=10/q-0.9q+0.05q2
Diyaolu
Mc=6-1.8q+0.15q2
Diyaolu
Avc of produs 2units of output and mc of producing 6units of output and AFC
Kadir
1- how to determine the optimal level of output and price in the short run? 2-how to calculate the economic profit (loss) the firm will obtain(incu...
Kalid
why demand curve shifts to left in long run
Wani Reply
because in long run when the demand of product is more so price will be more and due to increase in price of quantity demanded will be less and demand curve will shift left gradually
Iqra
Shift in demand curve is caused by a number of factors like taste, fashion, population amongst others and depending on whether the factors are positive or negative, that would determine the shift of the demand curve whether left or right and not whether short run or long run
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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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