Countries trade products Essay

In the terra firma market, countries trade products they wouldnt be able to produce on their own. Countries worry Cuba conditions in cigar production, Japan in electronics, and Russia in rocket technology. However, yet if a unpolished has an absolute advantage in producing all goods, they still volition benefit from trade. Many economic factors argon involved with trade. Among the major factors are fortune woos, comparative advantage, specialization and finally trade.Opportunity cost is delineate as the value of the best alternative forgone when an item or exercise is chosen. In separate words, opportunity cost is the cost of choice. For fount the opportunity cost of producing a gondola car is the time that couldve been used to produce something else, learn piece of music. For a unsophisticated ( field A) that has an absolute advantage ( the ability to produce something exploitation fewer resources than other producers use ) in producing both cars and paper, the oppo rtunity cost of producing say, 1 car is the production of 3 tons of paper. Thus, what product a sphere chooses to specialize on must be chosen so as to produce as much as realizable firearm suffering as little opportunity cost as possible.Which goods the realm should specialize on should be monitored by the law of comparative advantage, which states that the country with the lowest opportunity cost of producing a particular good should specialize in producing that good. By specializing on a certain good, a country lowers the opportunity cost of that good by forgoing production of other goods. For example Say country A has an absolute advantage in producing cars as well as paper, and the opportunity cost of producing 1 car is 3 tons of paper. rural B however, produces 1 car at an opportunity cost of 6 tons of paper. If these two countries specialized agree to comparative advantage, country A produces 2 cars whilst country B produces 12 tons of paper. Therefore, country B should concentrate on solely producing paper and hand over the job of car production entirely to country A.To gain the maximum benefits of specialization among countries, countries should trade their products with products from other countries. In the example above, the total output of cars and paper has increased as a leaveof specialization. But exactly how much should both countries trade to gain the highest possible benefits? By trading 1 car for 4 tons of paper, country A will gain 1 ton of paper spell country B gains 2 tons of paper. Hence, both countries gain more(prenominal) paper by trade without increasing their resources.Country ACountry BCars Paper (tons) Cars Paper (tons)Without tradeProduction and consumption 1 3 1 6With TradeProduction 2 0 0 12Trade Gives 1 Gets 4 Gets 1 Gives 4Consumption 1 4 1 8Gains from Trade change magnitude in Consumption None +1 ton None +2 tonsIn conclusion, all the economic factors mentioned combined with trade allows benefits even to a country t hat has the ability to produce goods while using fewer resources than other countries.