Trade Theory: Buying And Selling Of Goods And Services

Trade Theory Name Institutional Affiliation Trade Theory Trade can be referred to as buying and selling of goods and services. Over time trade has evolved from barter trade to monetary trade. Trade theory can be referred to as the different theories that can be used to explain patterns of trade. Trade theory also addresses the policies that should be put in place for the well-being of a country. Trade theory can be used to predict patterns in international trade. International trade is the exchange of goods and services between the two countries. International trade allows for the expansion of markets and reduces the dependence on the local market. This allows for citizens from different countries to have a variety of quality products to purchase. For example, people can purchase a German, Japanese or American car locally. International trade allows countries to specialize in different products which lead to efficient use of resources (Suranovic, 2010). By specializing in a product, a country becomes much better in production, this helps to reduce competition. Another reason is that most countries are not self-sufficient. For example, the United States of America is unable to produce coffee while other countries such as Brazil can grow the crop. Comparative advantage is another reason why countries trade with each other. This is based on the concept that countries should produce items that they can manufacture quickly and cheaply then trade those products for other goods which other countries can manufacture easily and cheaply (Suranovic, 2010). International trade allows the growth of companies in a country to have a high growth rate since they can export their products to overseas markets. Protectionism is the restriction of trade with other countries in order to protect local companies. Countries that practice protectionism to restrict the importation of goods. Protectionism leads to inefficient use of resources since the country has to produce everything that it requires without importing from other countries whe...