International trade: comparative advantages and protectionism...

International trade: comparative advantage and protectionism

The world market of goods and services is the basic part of the world economy. Its functioning presupposes an international exchange of goods and services, i. international trade.

International trade is the first form of international economic relations that arose from the international division of the pile and is a set of foreign trade of all countries.

Free trade. Principles of pricing in the world market of goods and services. Free trade benefits

Free Trade ( Free Trade ) - such a situation on the world market, when world prices are established on the basis of the correlation between the supply and demand for goods and services and any control (including by the state) is excluded.

Thus, free trade involves the realization of an exchange based on the principles of market pricing, not only in the domestic market of each country, but also in the world market of goods and services in general.

At the same time between countries there are stable links, expressed in the main categories of international trade:

Import ( M ) - import of goods from abroad to a given country that provides demand for goods and services ( D w) in the world market;

export ( X ) - the export of goods and services abroad from a given country, providing the supply of goods and services ( S w) in the global marketplace

world price (w) - the price at which a given product or service is sold on a worldwide basis market of goods and services;

• volume of international trade ( Q w) - the volume of goods and services sold and bought in the world market of goods and services.

Pricing in the world market of goods and services can be represented graphically (Figure 10.4)

The figure shows the process of establishing a world equilibrium price in the world market of goods and services. Here, on the basis of free trade, a certain commodity is exchanged between two countries: A and C. One of the countries ( country C ) will act as the exporter of this product, and the other country (country A ) - as an importer of this product.

Pricing in the world market of goods and services

Puc. 10.4. Pricing in the global market for goods and services

Pricing in the world market of goods and services is based on the following principles.

1. Market pricing. If the economies of countries ( A and C ) are closed, i.e. foreign trade is absent, this product in the domestic markets of these countries is sold at internal equilibrium prices ( and ) based on the supply-demand ratio within each country.

2. The difference between domestic prices. Internal equilibrium prices in different countries must be different (). This creates conditions for foreign trade by selling this product as an exporting country on the world market at higher prices and buying the product by the importer country at lower prices.

3. Freedom of foreign trade. The state does not interfere in the organization of foreign trade. There is no state regulation and protectionism policy, the Free Trade - mechanism of free trade is implemented.

4. The boundaries of the world price. The world price () fluctuates from the minimum value determined by the internal equilibrium price of the exporting country ( ) to the maximum value determined by the internal equilibrium price of the importing country ().

5. Equilibrium of the world market. The equilibrium of the world market of goods and services is set at a level of the world price at which the amount of the surplus of this commodity in the domestic market of the exporting country () will correspond to the deficit of the given goods in the domestic market of the importing country () and determine the equilibrium volume of international trade ().

6. Mutually beneficial foreign trade. Foreign trade benefits everyone: exporting countries, importing countries, and the world economy as a whole. In the importing country ( A ), as a result of international trade, prices are declining, from which the buyers receive additional income and the sellers lose some of their income, and in the exporting country ( C ) prices are rising, from which the sellers win and the losses are borne by the buyers.

The overall ratio of benefits and losses in international trade is in favor of benefits (Figure 10.5).

Consider consistently the situation in the importing country and the exporting country. In the importing country ( A ), the owl is

Value of benefits and losses from international trade

Fig. 10.5. Value for losses and losses from international trade

the buyer's losses from international trade will be determined by the price reduction to the level of the world equilibrium () and the corresponding reduction in sales volume.

In general, the reduction in the aggregate income of sellers will be determined by the area of ​​the rectangular trapezoid - a. By analogy, the increase in aggregate income of buyers will be determined by reducing the price to the level of the world equilibrium () and the increase in the volume of purchases, so the growth in total revenues will be determined by the area of ​​the rectangular trapezium a + b. The net gain of the importing country is the difference between the buyers' winnings and the losses of sellers, which will be determined by the area of ​​the triangle b.

In the exporting country (C), an increase in the price to the level of the world equilibrium value () will lead to a reduction in demand and, accordingly, The area of ​​the rectangular trapezium is c. The increase in total revenues will be determined by the price reduction and the increase in sales, which will be represented by the square of the rectangular trapezoid c + d. As a result, the net gain of the exporting country as the difference between the winners' winnings and losses buyers will be determined by the area of ​​the triangle d.

The total winnings of the world economy from international trade are the sum of the net gain of the exporting country and the importing country. In this case, the equality of the areas of the triangles in the system of national coordinates and the coordinates of the world economy is determined by the laws of geometry, proceeding from the rule that the area of ​​any triangle is half the product of its base height, which in the case of world market equilibrium are equal in construction.

Thus, all the subjects of the world market of goods and services, as well as the world economy as a whole, benefit from international trade.

All theories of international trade are aimed at clarifying the advantages of international trade and determining the specialization of countries. Classical theories of international trade are represented by A. Smith's theory of absolute advantages and D. Ricardo's theory of comparative advantages.

thematic pictures

Also We Can Offer!

Other services that we offer

If you don’t see the necessary subject, paper type, or topic in our list of available services and examples, don’t worry! We have a number of other academic disciplines to suit the needs of anyone who visits this website looking for help.

How to ...

We made your life easier with putting together a big number of articles and guidelines on how to plan and write different types of assignments (Essay, Research Paper, Dissertation etc)