International trade

Introduction

International trade refers to the selling and purchasing of goods across boarders i.e. between different countries. International trade allows for expansion of local markets into the world frontier due to the possibility of currency conversion in the foreign exchange markets. This kind of a market gives birth to what is generally; the forces of demand and supply influence the running of the market.

How is it different from domestic trade?

First, this sort of trade allows for movement of goods and services across boarders unlike in the domestic markets. International trade is what give rise to the import and export business in the world. Second, more than one currency is used and as such currency conversion mechanisms have to be in place to execute this kind of trade.

Why participate in international trade?

International trade exposes consumers and users to various types of goods and services that vary in terms of prices, quality and quantity measure. In the current economy, almost every single type of available commodity can be found no equal measures in most countries thus allowing consumers to choose in terms of the tastes and preferences without any restrictions. There are several theories in place to discuss international trade.

Purchasing power parity (PPP)

This is a theory in international trade that articulate that one should be able to purchase the same basket of goods with his or her money in different countries given that the exchange rate regime in place is thereby floating one. As a consequence, international trade has guidelines on how it should be carried out.

Law of one price

The law states that one should be able to purchase commodities at the same price at the preparing exchange rates. As such given the quality of goods produced in two different countries to be the same, one would not prefer wither over the other since the quality and prices are the same.

Advantages of international trade

The main advantage of international trade is the provision of a great variety of goods and services from which to pick thus maximizing the welfare of the consumer. Second, international trade brings about efficient and appropriate allocation of resources among the producers to terms of comparative advantage. Taking into consideration the comparative advantage factor in production among different allows for specialization thus in the end there will be a lot more time available for leisure for the workers as well as more consumption than before. Lastly through opening of the markets, a lot more employment can be created for man individuals in various sectors of the economy. International trade helps in the generation of more employment through the rising of small niche industries that are essential in sustaining the demand for a majority of countries.

Disadvantages of international trade

Due to the opening up of the markets and need to satisfy demand for the whole world, it could lead to a depletion of exhaustible resources such as natural gas and oil. Also due to the opening up of the markets, most of the small industries and also infant industries will probably be driven out by the already established industries from well developed nations. This is essence will ensure that these small countries will never be able to sustain themselves adequately without making use of imports from abroad.