Countries trade products Essay

In the world market, countries switch products they wouldnt be able to earn on their own. Countries like Cuba specializes in cigar intersection, lacquer in electronics, and Russia in rocket technology. However, all the same if a kingdom has an absolute payoff in producing all goods, they still depart benefit from betray. Many economic factors are involved with trade. Among the major factors are hazard hails, comparative advantage, specialization and finally trade. luck woo is defined as the esteem of the best alternative forgone when an item or activity is chosen. In opposite words, chance cost is the cost of choice. For example the prospect cost of producing a car is the metre that couldve been used to produce something else, say melodic theme. For a bucolic (country A) that has an absolute advantage ( the king to produce something using less resources than other producers use ) in producing both(prenominal) cars and penning, the hazard cost of producing say , 1 car is the output signal of 3 short tons of paper. Thus, what product a country chooses to specialize on must be chosen so as to produce as much as possible while suffering as little opportunity cost as possible.Which goods the country should specialize on should be monitored by the law of comparative advantage, which states that the country with the lowest opportunity cost of producing a particular good should specialize in producing that good. By specializing on a accepted good, a country lowers the opportunity cost of that good by forgoing outturn of other goods. For example Say country A has an absolute advantage in producing cars as well as paper, and the opportunity cost of producing 1 car is 3 tons of paper. Country B however, produces 1 car at an opportunity cost of 6 tons of paper. If these two countries specialized according to comparative advantage, country A produces 2 cars whilst country B produces 12 tons of paper. Therefore, country B should deoxidize on sol ely producing paper and upset over the job of car production entirely to country A.To gain the utmost benefits of specialization among countries, countries should trade their products with products from other countries. In the example above, the total output of cars and paper has increased as a passof specialization. But exactly how much should both countries trade to gain the highest possible benefits? By trading 1 car for 4 tons of paper, country A impart gain 1 ton of paper while country B gains 2 tons of paper. Hence, both countries gain more than paper by trade without change magnitude their resources.Country ACountry BCars Paper (tons) Cars Paper (tons)Without tradeyield and consumption 1 3 1 6With mintProduction 2 0 0 12Trade Gives 1 Gets 4 Gets 1 Gives 4Consumption 1 4 1 8Gains from TradeIncrease in Consumption None +1 ton None +2 tonsIn conclusion, all the economic factors mentioned combined with trade allows benefits even to a country that has the might to produce goods while using fewer resources than other countries.