International Trade

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Introduction

International trade is the purchase, sale or exchange of goods and services across national borders (Wild, Wild & Han 2006). This type of trade has rose to a global economy, in which prices, or demand and supply, influence and are affected by world events. The opportunity to be exposed to both goods and services not available in their own countries are given by trading globally. Let's take a simple example. If you go into a supermarket and are able to buy Brazilian coffee, South American bananas, and Japan Fuji apples, you are experiencing the results of international trade. Typically, international trade is more costly than domestic trade because of extra expenditures such as tariffs, time spending due to border delays and expenses associated with country differences such as the legal system, language or culture. There are various trade theories regarding international trade which are mercantilism, absolute advantage and comparative advantage. According to mercantilism theory, financial wealth should be accumulated by nations in order to demand a favorable trade balance through exports and discouraging imports. This was completed through trade surpluses, overseas colonization and government intervention. These three things are worked together. Through the colonization of under developed territories for their raw materials such as gold and silver, trade surplus was eventually maintained by shipping raw materials needed and exporting the finished good around the world. Additionally, the mercantilists encouraged government intervention with the proposal of tariffs, quotas and other commercial policies to protect a nation's trade position. At the same time, the government would provide export subsidies for their own industries and limit wages. The principle of absolute advantage is the ability of an economic actor (an individual, a household or a firm) to produce more of a good or service efficiently with the same amount or...
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