Question

Explain why economists generally argue that trade creates wealth. Your answer to this question should reflect what economists argue. Whether you agrees with the view held by economists is immaterial to this question: explain the economic argument.

Answer 1

Wealth is created through free trade across the boundaries. Trade takes place only through the voluntary exchange, The trade is based on the comparative advantage theory where both parties to trade stand to gain from such exchange. A country is able to get more from international trade relative to domestic exchange. The domestic exchange is costly for the country, thus country specializes where it has a comparative advantage and imports such good at cheaper rates from other trade partners. In this way, a country is able to produce more output with available resources which would not be possible without free trade.

Thus, the overall welfare of the country rises, and international trade makes the country wealthier. China has been the most successful country in raising the country wealth through the international trade. International trade creates the wealth but it does not ensure the equitable distribution of wealth in country.