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2 months ago
Write a short note on the competitive theory of international trade.
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Business and Its Environment
Edition: 7th
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The competitive theory of international trade is based on the gains from trade. Those gains are evident in the case of a country that cannot produce a product that its citizens wish to consume. Gains from trade are also evident when one country can produce a good more efficiently than another country, and the latter country can produce a different good more efficiently than can the former country. There are also gains from trade when one country is absolutely more efficient than the other in the production of both goods. That is, even though a country has an absolute disadvantage, gains from trade can be achieved if it produces the good for which it is relatively more efficient and the other country produces the good for which it is relatively more efficient. This result, known as the law of comparative advantage, provides the basic rationale for free tradeall countries, even those with an absolute disadvantage, can gain from trade. The gains from trade can be demonstrated when two countries either determine the terms of their trade through bargaining or trade goods in a competitive market.
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