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Economics and International Trade

1. Explain what is wrong with this statement: "Opening trade drives prices of goods and costs of factors into equality between countries, but once prices and costs equalize, there is no longer any reason to trade."

2. What is mercantilism?

3. If a country can produce a product efficiently but there is no domestic market for that product, how can that country gain by producing that product?

4. How do opportunity costs relate to the concept of comparative advantage?

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//This paper will help the reader to understand about international trade. We will be explaining the relationship between the opportunity cost and comparative advantage. We will also discuss mercantilism, and where it is found in today's world. This paper will also emphasize on how a country generates profits by producing the products, in which it is efficient, and where there is no domestic market for the product. The following section of the paper will help in knowing as to what is wrong with the statement "Opening trade drives prices of goods and costs of factors into equality between countries, but once prices and costs equalize, there is no longer a reason to trade."//

It is beneficial to trade with other countries only if prices of the products differ country to country. If a country is getting resources and commodities at the same price, then there is no effect on the economies of those countries, and there is no need of trade among countries. Trade is accomplished for earning profits by selling goods in other countries at a higher rate and procuring resources from foreign nations at low prices. "Opening trade drives prices of goods and costs of factors into equality between countries, but once the prices and costs equalize, there is no reason to trade any longer." This statement implies that all the nations provide goods at the same price and cost, which results into no need for trade. This would result in the formation of a closed economy in a country. This restrains the growth and development of a country (Reuvid & Sherlock, 2011).

If there is no trade, then there is no transfer of skills, knowledge and learning occurring that drives the growth and development of a nation. Therefore, for the growth and high standard of living in a nation, the trade should take place between the nations. This happens only if the prices of ...

Solution Summary

The response addresses the queries posted in 1250 words with references.

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