There are two main sources that provide a country with comparative advantage:.
The comparative advantage theory states that a country must specialise in the production of a good that bears the least opportunity cost.
Theory of comparative advantage (HL only)
So, if two countries produce goods in which they have absolute advantage, more wants can be satisfied and the production of goods increases for both countries individually.
The absolute advantage theory states that a country has absolute advantage when it produces a greater quantity of a good than another country with the same amount of inputs.
It provides training and technical assistance to less economically developed countries.
It also monitors national trade policies.
It also acts a forum for negotiation between different economies.
This means reducing methods of protectionism such as embargoes, quotas, and tariffs.
WTO’s main objective is to promote trade liberalisation all over the world.
Protects against certain methods like dumping (when the foreign competition has excess supply of a good and ‘dumps’ it in another economy at a very low cost, undercutting domestic producers and taking their revenue).
IB FREE TRADE FREE
Balance of payments is maintained if free trade is avoided (imports will not surpass exports).
Protectionism methods such as tariffs can help raise government revenue.
Government should protect declining industries from foreign trade in order to prevent mass unemployment in the economy.
Infant industries might not be able to grow due to foreign competition and the country might not be able to gain any comparative advantage.
Benefits of increased competition (innovation and lower prices).
International trade can also allow for more efficient allocation of resources (theory of comparative advantage).
International trade can allow for lower prices for consumers as other countries may be able to sell goods at a lower price level.
Industries that export can benefit from large economies of scale.
Due to the increased option of imports, consumers enjoy more choice.
International trade leads to an increase in consumer choice.
Many economies use international trade to gain access to raw materials not found in their own country.
International trade can allow countries to gain access to resources they do not have.
Free trade is defined as the exchange of goods and services between nations without restrictions.
International trade is the exchange of goods and services beyond national borders.