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Comparative Advantage, Free & Fair Trade and Budget & Trade Deficits

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I am seeking some guidance for the following questions with regards to international trade:
1) What is comparative advantage and how does it affect business?
2) What is the difference between free trade and fair trade?
3) What is the difference between the budget deficit and the trade deficit, and how do each affect the economy?

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Solution Summary

This solution is comprised of a detailed explanation of international trade concepts such as comparative advantage, free trade, fair trade, budget deficit, trade deficits, as well as how each pertains to the economy. The solution is supplemented by two references.

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1) Comparative advantage is a situation where a nation produces a good at a lower opportunity cost than some other country. It affects the business, as a country that has higher cost of producing any good would try to do business with the country that has comparative advantage over that good. This will be done by all the countries to make efficient use of resources and lower cost and inflation and this in turn would bring globalization and international trade.

2) Free trade is a trade ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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