International trade is important to a country with another country. It refers to a country’s economic, social and political. International trade is the economic interactions between different nations in the exchange of goods and services by importing and exporting. Why do modern countries trade with one another? There are some reasons that countries involve in international trading. For example, some countries lack of raw materials like timber, rubber, oil and petroleum. To gather these materials, countries must trade with other countries in order to get what they want. For example, a country which lacks of timbers, its citizens would unable to produce furniture or related products. By involving itself in international trade, its citizens can get timber to produce. In return, the country pays the foreign suppliers money as a medium of exchange. In most countries, international trade represents a significant of gross domestic product (GDP). International trade allows countries to exchange goods and services with the use of money as a medium of exchange. International trade has advantages and disadvantages to a country. International trade helps countries to share their prosperity and technical know-how in order to sell their surplus items mutually. 1.1 Advantages of International Trade
1.1.1 Increase of Total World Production
The first advantage is absolute advantage and comparative advantage can help a country to increase its outputs through specialization. As a result it will increase the total world production. Absolute advantage occurs when one country can produce more of one product compared to other country with using the same of resources. Comparative advantage states that countries can benefit through specialization and trade the production with each other to lower the opportunity cost. For example, Malaysia and Indonesia are the countries which export timbers and rubbers. However, Malaysia’s land area is smaller and limited. Thus, Indonesia gains absolute advantage to specialize in exporting timbers because it has large land area to replant after cut down the trees. Conversely, Malaysia is famous with its good quality of latex and rubber products. Thus, Malaysia should more focus in exporting rubbers than timbers. Malaysia gains absolute advantage to specialize in producing latex and exporting rubbers. On the other hand, Malaysia and Indonesia can gain comparative advantage through trading with each other. For example, Malaysia exports rubber to Indonesia, as return Indonesia will export timbers to Malaysia. When countries can produce through comparative advantage, it helps to reduce duplication and waste materials 1.1.2 Increase in Consumption Power
The second advantage is increase in consumption power. A country’s nation who involves in international trade is usually has good income. It is because they know to export their products to other countries to earn more money. Thus, they can generate higher incomes and able to afford in demand imported goods. Those people who rich may demand imported goods to improve their standard of living. It is because imported goods are usually having better quality, design and features. It has not only improved people’s standard of living but also economic growth within a country. 1.1.3 Reduction Unemployed Resources
The third advantage is reduction in unemployed resources. If a small firm needs to increase production for export purposes, it must intensify productivity and enlarge the firm. Firms should have four factors of production from the households, which is capital, entrepreneur, labor, and land. To enlarge the firm, entrepreneurs need to buy or rent a bigger size land, increase number of machines, and employs more labors to launch the business. It also helps other firms to get business opportunities like transportation and suppliers.
For examples, firms need to pay transportation fee for...