Advantages and Limitation of International Trade Assignment

Advantages and Limitation of International Trade - Assignment ExampleThis experiment explores the issues surrounding international trade. The Theory of Comparative Advantage. If 2 countries X and Y trade in two goods G and H, both can benefit by specializing in the good in which they have a comparative advantage and then trading them. This has been proved valid even when farming X has an right-down advantage in both goods due to the complexities of intra-landed estate distribution of resources. Distribution of Gains and Losses from Trade. If goods G and H engagement two inputs, K and L (capital/ labor), at given prices, production of goods will probably utilize inputs in different ratios. If G uses a higher ratio of K to L than H, production of that good becomes K-intensive, congress to H. Here, if G is K-intensive, it will mean that H is L-intensive.If country Xs inputs of production have a higher ratio of K to L than country Y, then X is K-abundant and Y is L-abundant, relati vely. A country will tend to export products which are intensive in factors that country has in abundance. A labor-abundant country (say country Y), will tend to export labor-intensive products. Also, country Xs capital-intensive exports will rise. As it does so, the relative price of the abundant factor in that country will rise. The L-abundant country will deal labor prices rising, i.e. wages will rise. The purchasing mogul of owners of labor will rise purchasing power of owners of capital will fall. International trade will tend to equalize the relative prices of the two factors in the two countries