International Trade — Part I — Why People Trade

In: Business and Management

Submitted By zhu006
Words 1275
Pages 6
Lesson Purpose:
To develop a full understanding of trade, one must first divorce politicians’ and the media’s descriptions of trade from economists’ understanding, especially as it relates to the ‘benefits of trade.’ Politicians traditionally say they favor trade, but only as long as their constituencies are not adversely affected. Economists favor voluntary, or free trade, without that political caveat, because it leads to resources being used in their most highly valued ways and thereby to general, widespread increases in standards of living.

Many students see the win-win model of voluntary exchange as abstract, a textbook construct and simulation artificiality that doesn’t fit the real world where trade affects jobs, the environment, and relationships between nations. The economic consensus on the importance of voluntary trade is an extension of their recognition of the benefits of voluntary exchange among individuals and businesses. Teachers can best build students’ understanding of how trade creates wealth by taking the time to establish a firm grounding in the key economic reasoning tools – specialization, division of labor, productivity, and comparative advantage – and by applying them to trade within a nation before leaping into trade among nations.

The basics, as always, come back to scarcity and opportunity cost. Natural and human resources are not equally distributed throughout the world, or even, indeed, throughout a nation. One of the most important functions of trade is to redistribute resources – from those who value them less to those who value them more. Improvements in technology and transportation have heightened the power of trade to redistribute incomes and wealth, and in the process, to raise standards of living.

This lesson focuses on how wealth is created as specialization and division of labor facilitate trade based on…...

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