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Why do people trade?

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Why do people trade? When answering this question consider the history of trade and how trade has influenced history. Consider the theories of Absolute and Comparative Advantage. Incorporate thoughts on the Ricardian model, Heckscher (1919) - Olin (1933) Theory, Leontief Paradox and the New Trade Theory.

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Why do people trade? When answering this question consider the history of trade and how trade has influenced history. Consider the theories of Absolute and Comparative Advantage. Incorporate thoughts on the Ricardian model, Heckscher (1919) Ohlin (1933) Theory, Leontief Paradox and the New Trade Theory.

Why we trade

The principal purpose of global trade is and always will be to capitalize on the gains from international trading for each party involved. The global trade models below each have one thing in common; each has attempted to examine trade patterns while suggesting methods in an attempt to take full advantage of the gains from trade.

Comparative Advantage

Comparative advantage, theorized by David Ricardo, exists when countries have marginal dominance over goods and/or services production levels, and when the opportunity cost of their production is lower. International trade affords great opportunities for workers by improving their overall living conditions. The International Monetary Fund states international trade between diverse countries facilitates trade and industry growth, higher employment levels and more apposite income standards as opposed to countries without international trade economic structures (www.imf.org, 2000).

Ricardian Model:

The Ricardian model is the most simplistic and most fundamental model of global trade that we have. The simple Ricardian model has only one manufacturing contribution, labor. Contemporary descriptions of the simple Ricardian Model presume there are two nations each manufacturing two goods and/or services, while utilizing one aspect of ...

Solution Summary

Comparative advantage, theorized by David Ricardo, exists when countries have marginal dominance over goods and/or services production levels, and when the opportunity cost of their production....includes multiple references in APA format.

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