The topic of interest is International trade. It is the trade between countries that involve the exchange of goods and services (Tutor2u, 2017). This type of trade benefits all countries involved when conditions such as a country’s GDP, living standards and the production of primary goods are stable (Simpson, 2017). It relies heavily on specialization and comparative advantage. Specialization is the focus on the efficient production of a particular commodity to minimize production costs. Comparative or absolute advantage states that countries can benefit from each other only if one country performs the production of a particular good better than the other. The whole concept of international trade has many challenges such as the impediments to trade like tariffs, subsidies and quotas. It is due to the law governing imports and exports in one country that may differ in another country (Sloman & Sutcliffe, 2002).
There is a theory that describes the workings of international trade (Tutor2u, 2017). It is the theory of trade, which has a basis on three assumptions. The first is, for the trade to be efficient, factors of production, which are land, labor and capital, have to be continuously productive with no losses. The constant returns to scale is another assumption, it means that specialization can lead to diminishing returns then trade decreases. The last assumption is that when it comes to the trade, there is ignorance of external factors that affect production and consumption such as environmental considerations (Simpson, 2017). The reason why I have chosen this topic is that it is interesting as I aim to understand the methods global companies use to deal with the present challenges and how they contribute to the success of the business.
References
Economics: International Trade. Tutor2u. Retrieved from http://www.tutor2u.net/economics/reference/international-trade
Simpson, S. D. (2017). Macroeconomics: International Trade. Investopedia.
Sloman, J., & Sutcliffe, M. (2002). Economics. Harlow, England: Prentice Hall/Financial Times.
