why do countries trade

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1、whydocountriestrade?TheAdvantagesofInternationalTradeCountriesneedtoexportgoodsandservicestofinanceimportsofthoseproductstheycannotproduceinthiscountry.ExportsrepresentaninjectionofdemandintothecircularflowofincomeThereisanimprovementineconomicwelfareif

2、countriesspecializeintheproductsinwhichtheyhaveancomparativeadvantageandthentradewithothernationsTradeallowsfirmstoexploitscaleeconomiesbyoperatinginlargermarkets-theEuropeanUnionhasover450millionconsumerswithamassivepurchasingpower.Economiesofscalelead

3、toloweraveragecostsofproductionthatmightbepassedontoconsumersInternationalcompetitionstimulateshigherefficiency-particularlyfordomesticmonopolies.FreetradeprovidesgreaterchoiceforconsumersandcompetitionhelpskeeppricesdownImportscanhelptosatisfyexcessdem

4、andfromconsumers-actingasasafetyvalvefortheeconomy.Atradedeficitduringaneconomicboomhelpstoreducedemand-pullinflationTradeinideasstimulatesproductandprocessinnovationsthatgeneratesbetterproductsGainsfromtradeusingsupplyanddemandanalysis ThediagramshowsJ

5、apancanproducecamcordersatlowercosts-itssupplycurveislowerthantheUK.ThismeansthatJapanhasacomparativeadvantageinproducingcamcorders. Intheabsenceofinternationaltradebetweenthetwocountries,BritishconsumerswouldhavetobuyatahigherequilibriumpricethanJapane

6、seconsumers.SinceJapanismoreefficient,itmakessenseforJapantospecialiseinproductionofcamcordersandexporttheirsurplusoutputtotheUKatalowerfreetradeprice.Attheintermediatepriceshowninthediagram,(thefreetradeprice)JapansellsexportstotheUKforahigherpricebutt

7、hisisstilllowerthantheUKequilibriumprice.Japanreceivesrevenuefromthesaleoftheseexports. UKconsumerscannowbuymorecamcordersatalowerpriceandhavemorechoiceinthemarket Weareignoringtransportationcostsbetweenthetwocountriesandweareassumingthattheresourcestha

8、twerepreviouslyallocatedtoproducingcamcordersintheUKcanbereallocatedtootherindustries(i.e.resourcesareassumedtobeoccupationallymobile).economicargumentsforimposingimportcontrolsInfantIndustryArgumentCertainindustriespossessapoten