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Why do we to trade with other countries?

Posted 04-08-2010 at 03:28 AM by angelieg [Show Appreciation] What's This?

One condition for trade between two countries is that the countries differ with respect to the availability of the factors of production. They differ if one country, for example, has many machines (capital) but few workers, while another country has a lot of workers but few machines.
Countries in which capital is abundant and workers are few, therefore, specialize in production of goods that, in particular, require capital.Specialization in production and trade between countries generates, according to this theory, a higher standard-of-living for the countries involved
One can compare an economic theory with a map over of a piece of land. A map gives an idea of what a certain piece of land looks like, even though nature is too complex to be described completely by it. While a map can help us understand an unknown terrain, economic theories help us understand economic interactions between individuals or countries. For example, why individuals or countries trade with each other and why trade may benefit the parties involved.

By specializing in production, and by trading with other countries, it is possible for countries to increase their incomes. Even though countries as a whole benefit from specialization and international trade, all groups in society, workers and capitalists, do not gain according to the Heckscher-Ohlin theory. If international trade leads a country to specialize in producing goods that require lots of workers and little capital, such a specialization increases wages (which benefits the workers) but decreases the income of the capital owners. But the country as a whole benefits because the gain of the workers is bigger than the loss of the capital owners.

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  1. Old Comment
    Tekmnd's Avatar
    Hi Angelieg

    Interesting post. I really enjoy reading posts on the economy.

    Posted 04-08-2010 at 07:07 AM by Tekmnd Tekmnd is offline [Show Appreciation] What's This?
  2. Old Comment
    Magic's Avatar
    Hi Angelie, and welcome to the community.

    Like Tek, I enjoy these posts on economics. Are you a student or professor?
    Posted 04-08-2010 at 08:16 AM by Magic Magic is offline [Show Appreciation] What's This?
  3. Old Comment
    x3mtrading's Avatar

    Capital Intensive V Labour Intensive

    Hi Angelieq

    I also found your post interesting.I was just wondering which is better for an Economy a capital or labour intensive system or some combination of both.

    For example if I have a tractor I can plough a field more easily,and maybe cheaply,but I might also be putting somebody out of a job by doing so.

    Any thoughts?

    Posted 04-08-2010 at 05:27 PM by x3mtrading x3mtrading is offline [Show Appreciation] What's This?

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