(a) What is international trade? (b) Explain any four advantages of international trade.

Answer Details

(a) International trade is the exchange of goods and services across national boundaries, that is, trade between two or more countries. It comprises imports (goods and services bought from abroad), exports (goods and services sold abroad) and entrepot trade (re-export of imported goods).

(b) Four advantages of international trade:

• Enables consumption beyond domestic production: Countries obtain goods they cannot produce at all or cannot produce efficiently, widening the range of goods available to consumers.
• Promotes specialisation and efficient use of resources: Each country specialises in goods in which it has a comparative advantage, raising world output and lowering costs.
• Source of foreign exchange and revenue: Exports earn foreign exchange used to import capital goods, and import/export duties yield government revenue.
• Widens the market and transfers technology: A larger market allows economies of scale, and contact with other countries spreads skills, ideas and modern technology, fostering development and international understanding.