Why do nations sometimes decide to restrict free trade?
What is the balance of payments?© BrainMass Inc. brainmass.com October 9, 2019, 5:32 pm ad1c9bdddf
1. In light of the "theory of comparative advantage" are any restrictions on free international trade advantageous?
In economics, the theory of comparative advantage explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other.
While international trade has been present throughout much of history, its economic, social, and political importance have been on the rise in recent centuries, mainly because of industrialization, advanced transportation, globalization, multinational corporations, and outsourcing.
WHY DO COUNTRIES TRADE WITH EACH OTHER?
- To obtain goods that they cannot produce themselves
- To increase choice for their consumers
- To obtains goods at a cheaper price than what they can produce themselves
- To make more revenues and profits. It an extra place in which to sell their goods
- Countries specialise in the production of goods and services at which they are better.
- To exploit a comparative or absolute advantage.
They are linked together by:
1. Exchange of goods and services
This happens because each country has its own comparative advantage . What matters is not the absolute cost of production, but rather the ratio between how easily the two countries can produce different kinds of things.
Take the example involving England and Portugal. In Portugal it is possible to produce both wine and cloth with less work than it takes in England. However, the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only ...
Summarize the balance of payments.