Question

2. Why is trade taking place between countries? What is the explanation of international trade theory?

Answer 1

2.) Trade takes place between countries because a country do not have enough resources to solve all its needs on its own so it carries out trade relations with other countries.By developing some scarce resources countries can trade with other countries . Imports trade can be a great boon for the economy as imported goods may be of better quality or more cheaper or may have a better appeal. Today most of the countries have trade relations as besides such advantage4s on imports it can also generate a good amount from exports and contribute towards the nation's economy and exports.

International trade theory is a theory which involves trading between two people, entities or two nations now. It involves all the theories on how a trade needs to be carried on. International Trade theory is generally of two types , Classical country based theories and modern firm based theories. Country based theories all such theories of

mercantilism, absolute advantage, comparative advantage and Heckshir-Ohlin.

Modern firm based theories include the following, country similarity, product life cycle, global strategic rivalry and Porter's national competitive advantage.