Question

Chapter 2 - The Evolution of International Business

Why do countries trade with each other? What would happen if countries curtailed or did not trade with each other? Select a theory discussed in chapter 2, explaining why it is beneficial for a country to engage in international trade.

Answer 1

Countries trade with each other to acquire goods and resources from other countries. They do trade to satisfy their own needs and wants. Trade will also helps countries to maintain good relationship with each other and will make them to have a mutual understanding between each other.

Countries require resources for development of economy and it's people. Not all countries have every resource that they require, so if countries don't trade with each they have buy these resources at a higher price in the market which is a burden for them. They won't able to develop as fast as they are now doing. The firms along labour will be restricted to their country market and they won't have any opportunity to enter new markets and make profits for their living. Countries will not able to know in what goods or services they have comparative advantage when compared to other countries.

While engaging in trade countries will have comparative advantage in some goods and services which means they can produce more quantity of those goods and they will consume them in less number which will help them to export those goods. Firms will have opportunity to enter new markets. Labour will have rise in wages , economic development will take place, foriegn direct investment will increase, employment rate goes up etc.