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Trade Theory Paper (Essay Sample)

Trade Theory Paper Compose a 2-3 page paper that analyzes trade theory and answers the question, Why do nations trade? When answering the question include the economic concepts of free trade versus protectionism as well as how trade has influenced history. Consider also the theories of absolute and competitive trade. source..

Title: Trade Theory Paper
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Nations in the world often engage themselves in trade for the purposes of outsourcing which has often been viewed as being beneficial for those countries that have advanced industrially. However there exist some controversies that outsourcing is no longer beneficial. According to Samuelson (2004), outsourcing is no longer of benefit especially to those countries whose majority of workers are often sidelined and replaced by those from countries that are underdeveloped .On the other hand, some economists argue that loosing of jobs in America are temporarily. For example, in the short term employees may suffer whilst on the long run the labor markets are often forced to adjust in a manner that enhances the benefits of outsourcing (Irwin, 2004).
International trade is of significance because; in the world today resources are often unevenly distributed between countries thus making countries to produce goods that others don`t have. This has triggered the increase in variety of goods and services e.g. The U.K are known for producing cheese but the English international trade can supplement it by producing French cheese. The international trade can only be profitable when variety of goods have distinct opportunity costs in different trading countries. Hence absolute advantage occur when a country is found to produce a particular good effectively and efficiently and the other countries in producing another type of good hence enhancing the trade between these countries where one gets the product that it doesn`t produce from the other. However, when a country strictly produces one category of good then that is referred to as comparative advantage. For example, a country may specialize in producing automobiles and this may be quite risky in case the prices of the particular good in the market falls the country economy might be at risk
Dent highlights that, prior to 1776; economic thinking had found its dominance in mercantilism theory which indicated that a nation could only be prosperous in relation to its cash flows (1970). According to this theory, in order for a nation to have adequate supply of money it had to expand its exports and decrease on its imports thus encouraging an inflow of billions of cash. This can only be achieved through enforcing numerou...
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