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The economic gains from expanding international trade are measured in hundreds of billions of dollars, and the gains from international trade as a whole probably reach well into the trillions of dollars. The potential for gains from trade may be especially high among the smaller and lower-income countries of the world.

Visit this website for a list of some benefits of trade.

From interpersonal to international trade

Most people find it easy to believe that they, personally, would not be better off if they tried to grow and process all of their own food, to make all of their own clothes, to build their own cars and houses from scratch, and so on. Instead, we all benefit from living in economies where people and firms can specialize and trade with each other.

The benefits of trade do not stop at national boundaries, either. Earlier we explained that the division of labor could increase output for three reasons: (1) workers with different characteristics can specialize in the types of production where they have a comparative advantage; (2) firms and workers who specialize in a certain product become more productive with learning and practice; and (3) economies of scale. These three reasons apply from the individual and community level right up to the international level. If it makes sense to you that interpersonal, intercommunity, and interstate trade offer economic gains, it should make sense that international trade offers gains, too.

International trade currently involves about $20 trillion worth of goods and services moving around the globe. Any economic force of that size, even if it confers overall benefits, is certain to cause disruption and controversy. This chapter has only made the case that trade brings economic benefits. Other chapters discuss, in detail, the public policy arguments over whether to restrict international trade.

It’s apple’s (global) iphone

Apple Corporation uses a global platform to produce the iPhone. Now that you understand the concept of comparative advantage, you can see why the engineering and design of the iPhone is done in the United States. The United States has built up a comparative advantage over the years in designing and marketing products, and sacrifices fewer resources to design high-tech devices relative to other countries. China has a comparative advantage in assembling the phone due to its large skilled labor force. Korea has a comparative advantage in producing components. Korea focuses its production by increasing its scale, learning better ways to produce screens and computer chips, and uses innovation to lower average costs of production. Apple, in turn, benefits because it can purchase these quality products at lower prices. Put the global assembly line together and you have the device with which we are all so familiar.

Key concepts and summary

Tariffs are placed on imported goods as a way of protecting sensitive industries, for humanitarian reasons, and for protection against dumping. Traditionally, tariffs were used as a political tool to protect certain vested economic, social, and cultural interests. The WTO has been, and continues to be, a way for nations to meet and negotiate through barriers to trade. The gains of international trade are very large, especially for smaller countries, but are beneficial to all.


If trade increases world GDP by 1% per year, what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint : To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount the additional increase in global incomes due to trade and compare that number to Sri Lanka’s GDP.

Got questions? Get instant answers now!


World Trade Organization. “The Doha Round.” Accessed October 2013. http://www.wto.org/english/tratop_e/dda_e/dda_e.htm.

The World Bank. “Data: World Development Indicators.” Accessed October 2013. http://data.worldbank.org/data-catalog/world-development-indicators.

Questions & Answers

Why globalisation an free trade is important
Fredrick Reply
monopoly or monopolistic is known as 'price maker'
Rossi Reply
what is elasticity
Helna Reply
measures responsiveness the quantity of demand for change in the price
a degree in which consumer's changes their demand or amount supplied in responce to changes in income or prices
is the concept which indicate the degree of responsiveness of quantity demanded to a small change in price of goods,income or price of another goods.
what is a trade off
a balance achieved between two desirable but incompatible features; a compromise.
wow sorry question... fish not bull bear fish
flexiblity in demand and price
what is demand
Mouni Reply
what is dead weight loss
Sharee Reply
a reduction in consumers’ surplus caused by a fall in quantities of a product produced, especially when a monopoly producer keeps production low to maintain high prices
what is the difference between capitalism and socialism
Helna Reply
captalism ,market dominated economy socialism,goverment domineted economy
what is the difference between positive economics and normative economics
Ritesh Reply
positive economics is not the value judgement but normative economics is known as the value judgement.
positive economics only describes the economic phenomenon as it is. normative economics, beside describing phenomenon also suggest a solution to it
is there only one difference between positive and normative economics
that's the most important difference.
what is economics
Ritesh Reply
is the study of allocative scarce resources to meet human unlimited want
other definition of economics
economic is the knowledge which concerned with the wealth and consumption of goods and services
Study of all kinds of economic activities people involve in a particular society n time
how can we define a demand
A good or something we really want and need
economics simple defination is =needs+wants>resources
demand is consumer willingness to pay a price for a specific good or services
It is the science of scarcity the want are unlimited and resources are limited which are in alternative uses
Demand is the desire to own anything, the willingness to pay for it and the ability to buy it
explain the relationship between individual supply and market supply
what is positive economics
Sarita Reply
The consumer and producer are getting equal satisfaction i.e called positive economics.
Positive economics seeks to describe and predict measurable, economic phenomena. Normative economics seeks to identify what economies ought to be like.
so what is life like
Raymone Reply
life is a long story about how you die
Life is all about impact, influence and contributions u make when living
It's about how you use yourself as a resources to fulfill your goals, needs etc
what is a law of demand?
Lydia Reply
its the relationship between price and quantity demanded, they are related conversely. As the price of a good increases, the quantity demanded will decrease and as price decreases the quantity demanded increases (all other factors remaining constant).
thank you Ligia I know understand.
A demand curve shows the relationship between the price and the quantity demanded... how about the supply curve?
Also shows the relationship between price and quantity supply... At higher price, quantity supply increases and vice versa... All other things being equal.
It's shows an in inverse relationship between the price n quantity demand made by individual in a given period of time
why don't ppl ask past paper questions
Melissa Reply
oligopoly is a market where few no. of sellers and large no. of buyrs
what is Monopoly?
There are sole seller in monopoly and it easily influence the price
normative and positive economic
What is Oligopply
Durai Reply
What is oligopoly
A kind of market where there are few sellers selling identical or substitute of that product in a very close proximity
why the IS curve is backward bending?
what is production function?
Grace Reply
what is production function?
what is microeconomy?
micrcoeconomy is the study of the economic behavior of individual unit of an economy( such as person, household, firms, industry)

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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