UNIT 8: INTERNATIONAL TRADE

1. DEFINITION
- International trade is the exchange of goods and services in the world, or
global market.
- In international trade, there are usually two parties:
+ Import – goods and services which are bought from other countries and sold in
the domestic market.
+ Export – goods and services which are produced in the domestic market and
sold in other countries.
- Balance of trade (BOT) is the difference between the value of a
country's exports and the value of a country's imports for a given period.
+ A trade deficit occurs when a value of a nation’s export is less than the value
of its import. (Exports < Imports)
+ A trade surplus occurs when a value of a nation’s export is greater than the
value of its import. (Exports > Imports)
2. ECONOMIC PRINCIPLES
There are two economic principles that help explain how and when
specialization is advantageous.
- Absolute advantage evaluates how efficiently a single product can be
produced for quality, quantity and profit.
- Comparative advantage helps an entity select between several products to
determine which has the greater return.
3. BENEFITS
 More Choices for Consumers
 Access to new customers
 Product sale flexibility
 Political effects
 Price Stability
 Enhances Technological Know-How
4. COMMON BARRIES TO INTERNATION TRADE
 Natural obstacles like language, distance, etc.
 Tariff barriers — import duty, export duty, or anti-dumping duty.
 Non-tariff barriers — embargoes, government restrictions on imports, and
import quotas.