Question

Q. Discuss the advantages to trade.

Answer 1

Trade sets a benchmark for any country's economy. Prosperity of any country majorly depends on trade. Trade allows consumers to buy good quality goods at reasonable prices. It also eases inflationary pressure of a country. Trade plays a major role in innovation, all in all trade leads to economic growth.

By trade, I am assuming it to be free trade. Hence, the advantages are:

1) Rise in exports:

Trade not only helps in import of international goods but it also plays a lead role in increasing the amount of exports and with that it also increases economic welfare of a country. Export varies depending on the quotas and tariffs set by the government.

2) Economies of scale:

A country specialising in production of a specific commodity can take advantage of economies of scale. Economies of scale can be used to decrease the average costs. It ultimately leads to lower prices and increases efficiency for exporting firms.

3) Comparative advantage:

Free trade allows countries to produce specialised goods so that they can avail comparative advantage. Production of those goods where opportunity costs are lower and thereby can be an increase in the economic welfare of a country. Comparative advantage increases overall GDP of a country.

4) Engine of growth:

Trade is found to be a significant contributor when it comes to economic growth of a country. Trade enables a country to increase overall GDP and also leads to a better standard of living.

5) Rise in competition:

With the increase in trade, domestic firms face more competition and thereby increase the overall efficiency. This also eases the inflationary pressure as it prevents domestic firms from charging high prices.