International Trade


International Trade Overview:

International trade serves as the cornerstone of global economies, facilitating the exchange of goods and services across nations. The basis for international trade lies in the concept of comparative advantage, where countries produce goods in which they have a lower opportunity cost compared to other nations. This principle enables countries to specialize in the production of goods they can efficiently produce, leading to increased overall production and consumption worldwide.

There exists a crucial distinction between balance of trade and balance of payments in the realm of international trade. The balance of trade specifically refers to the difference between a country's exports and imports of goods. On the other hand, the balance of payments encompasses a broader scope, including not only goods but also services and financial transactions between a country and the rest of the world.

When a country encounters deficits in its balance of payments, it faces various problems such as currency depreciation, inflation, and depletion of foreign exchange reserves. To address these issues, corrective measures are implemented, including devaluation of the currency, imposing tariffs or quotas on imports, or seeking financial assistance from international organizations.

Nigeria, as a prominent player in the global market, has a distinct composition and direction in its foreign trade. Understanding the dynamics of Nigeria's foreign trade involves analyzing the types of exchange rates prevalent in the country and how these rates are determined. Exchange rates play a pivotal role in shaping a nation's trade relations with other countries, influencing export competitiveness and import costs.

By delving into the nuances of international trade, individuals can comprehend the intricate web of economic interactions that underpin the global economy. Through a deep exploration of comparative advantage, balance of payments issues, and exchange rate mechanisms, one gains insight into the complexities and opportunities inherent in the world of international trade.


  1. Distinguish Between Balance Of Trade And Balance Of Payments And Their Corrective Measures
  2. Examine How Exchange Rates Are Determined
  3. Examine The Composition And Direction Of Nigeria’s Foreign Trade
  4. Differentiate Between Absolute And Comparative Advantages
  5. Identify The Types Of Exchange Rates
  6. Highlight The Problems Of Balance Of Payments And Their Corrective Measures
  7. Examine The Basis For International Trade

Lesson Note

International trade plays a crucial role in the global economy, allowing countries to expand their markets for goods and services that they might not produce domestically. It creates a competitive environment, fosters innovation, and leads to more efficient production methods. By engaging in international trade, nations can achieve a higher standard of living.

Lesson Evaluation

Congratulations on completing the lesson on International Trade. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.

You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.

Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.

  1. What is the basis for international trade? A. Price differences between countries B. Language similarities between countries C. Geographic proximity of countries D. Political alliances between countries Answer: A. Price differences between countries
  2. What is the key difference between absolute and comparative advantages in international trade? A. Absolute advantage focuses on cost, while comparative advantage focuses on productivity B. Absolute advantage is based on natural resources, while comparative advantage is based on technology C. Absolute advantage is country-specific, while comparative advantage is industry-specific D. Absolute advantage is static, while comparative advantage is dynamic Answer: C. Absolute advantage is country-specific, while comparative advantage is industry-specific
  3. How can a country correct a trade deficit in its balance of trade? A. Increase exports and decrease imports B. Decrease exports and increase imports C. Implement trade barriers on imports D. Devalue its currency Answer: A. Increase exports and decrease imports
  4. What are the problems associated with balance of payments? A. Inflation and unemployment B. Appreciation and deflation C. Devaluation and revaluation D. Persistent deficits and surpluses Answer: D. Persistent deficits and surpluses
  5. In Nigeria, what is the main direction of foreign trade? A. West Africa B. Europe C. Asia D. Americas Answer: A. West Africa
  6. What are the different types of exchange rates? A. Fixed rate and flexible rate B. Managed rate and controlled rate C. Stable rate and volatile rate D. Equilibrium rate and disequilibrium rate Answer: A. Fixed rate and flexible rate
  7. How are exchange rates determined in a flexible exchange rate system? A. By government regulations B. By international organizations C. By market forces of supply and demand D. By fixed pegs to other currencies Answer: C. By market forces of supply and demand

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Past Questions

Wondering what past questions for this topic looks like? Here are a number of questions about International Trade from previous years

Question 1 Report

Applying the law of comparative costs, how many units of groundnuts will Nigeria produce?

Question 1 Report

Which of the following measures can lead to an increase in exports?

Practice a number of International Trade past questions