It is widely accepted that trade always fuels business activities, empowers consumers to desire more, generates more jobs, saving, and overall living standards. In other words, at both ends, trade can make everyone better off.
List of 10 basic economics principles
1.People face trade offs.
2.The cost of something is what you give up to get it.
3.Rational people think at the margin.
4.People responds to incentives.
5.Trade can make everyone better off.
6.Markets are usually a good way to organize economic activity.
7.Governments can sometimes improve economic outcomes.
8.The standards of living depends on country’s production.
9.Prices rise when the government prints too much money.
10.Society faces a short run trade offs between inflation and unemployment.
Commercially, it is too difficult for any nation to produce goods and services she need with lesser opportunity costs than others. Is it possible within available scarce resources with greater opportunity cost?
Requirement of bilateral and multilateral trade
So, then, why shouldn’t participants focus on production of commodities in which they have lesser cost and more advantage?
Obviously, if the participants actors follow this principle, both will be benefited never before with lesser cost. Hence, it is inevitable to say that trade can make everyone better off and hardly have negative impacts.
Even though, someone choose to produce everything they require, it will negativity affect the the surplus of both consumer and producers surplus. And, you know that higher opportunity cost of given commodity might not be helpful in increasing the quality of life everyone aspire.
Logically, No country in the world would be absolutely self-sufficient in terms of goods and services when everything on this planet is finite.
Free trade, market competition and comparative advantage
For meaning, trade is nothing but exchange of goods and services that people demand in the market by the means of money. If the trade is free from external restrictions, the possible surplus is going to be shared none other than market participants. It will help in utilizing resources more efficiently.
Comparative advantage and market power
Usually, people purchase or sell things they have in market place for money. While doing so, they prefer to buy commodities that are either cheaper or affordable Comparatively in the competitive markets.
For layman’s understanding, whosoever has comparative advantage, capture more market power. And, more market power produces mass production and economies of scale effect.
Ultimately, everyone would be richer. Then, isn’t it true that trade can make everyone better off. But, the trade is more free and restriction less, it will play much effective role.
Market competition and comparative advantage
More precisely, competitiveness of any commodity is determined by the available comparative advantage and opportunity costs. Simply, more the comparative advantage, lesser the opportunity costs and vice-versa.
And, If the opportunity costs of given commodity is lower than other, it is termed as competitive in the open market. Or, in case of higher, the given product can’t attract more buyers.
Better revenue, market expansion, and larger product cycle
Who doesn’t want to make more money on the basis of investment and time and hard work? Absolutely, everyone wants to maximize profit and revenue.
Suppose, had the Chinese mobile companies not been entered in the mobile manufacturing and market, would it have been possible for poor countries to be part of online world?
Now, even the poorest can enjoy the benefits of mobile technology that hardly would have been possible with handful earlier monopolistic players.
Honestly, this is possible only when there is a global market and there is no restrictions on entry and exit. It helps to enlarge product cycle by the means of trade.
Last words on trade can make everyone better off,
Finally, it is more comfortable to claim that trade has potential to make everyone better irrespective of regions. This is the trade that revolutionised human life ever since the dawn of civilization. And, still continue to do so.
Actual cost and opportunity cost