Question: Explain why international trade and specialization result in lower pri

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Question: Explain why international trade and specialization result in lower prices (and more domestic consumption) for imported products and higher prices (and less domestic consumption) for exported products. As well as how trade makes it possible for domestic producers to obtain higher prices for the items they export and for domestic consumers to buy imported items at lower prices. Be sure you have answered the question using your own words in a paragraph of at least 250 words, Proofread your work carefully to address any issues in grammar, spelling, punctuation, and capitalization. Your assignment should be typed in a Microsoft Word (or compatible) document.

Explanation / Answer

International trade has been helpful for many nations in their development and progress. Countries gains from International Trade which can be arising from the comparative advantage the Nations are having. A comparative advantage can be described as an advantage in production when one Nation has the ability to produce a particular product with a lower opportunity cost than any other Nation. When a nation is able to do that, it can benefit from gains of trade.
When a particular country has a comparative advantage in a particular product, it gains specialisation and it starts producing and exporting it. Because the Nation was able to produce the product at a lower cost relative to the cost of production by other countries , it is able to export it at a price which is lower than the price at which the same product is available in other countries.

This enables it to earn profit from such Exports which are there for a part of gains from trade. There are losses as well. When the country specialises in a particular product it tends to overlook the other products which means, their production Falls. In this manner trade will help the factor of production which was used in the product that was exported and the factor of production which was used in the product which is not a specialised by the nation will experience of fall in the income.

This pattern of trade is also visible from the point of view of importing country. The country that imports a particular product which it could have produced at a higher cost, now deprives the factor of production of their income because it is not producing it now. The factors of production of imported good experience of fall in their income. However the increase in the consumer surplus due to a lower price of imports outweighs the loss in the producer surplus so that overall the economy experiences a net Social Welfare as a result of trade.

The production and consumption possibilities are also changed as a result of trade. An exporting Nation before trade might have been producing a particular combination of goods. As a result of specialisation and exporting the specialised good, the nation can experience an increase in consumption because it is now able to import other products at a lower price and show its overall consumption bundles has higher quantity of at least one product.

Gains from trade are clearly visible when two Nations trade goods and services with each other rather than one country exporting and the other importing a good.

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