Macroeconomics (MindTap Course List)
Macroeconomics (MindTap Course List)
10th Edition
ISBN: 9781285859477
Author: William Boyes, Michael Melvin
Publisher: Cengage Learning
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Chapter 19, Problem 1E
To determine

Benefits of two countries having mutual voluntary trade.

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Explanation of Solution

Trade between two countries is extremely beneficial to a nation. It is believed that any nation's wealth is based on national holdings. In general, trade is beneficial between two countries that have strong markets at two different levels and in different sectors.

The opening of trade would do more to make new exchanges profitable.It would also affect what people decide to produce with their labor. The changes in demand caused by international trade would lead each nation to follow in its absolute advantage in deciding what to make. Full analysis of international trade requires consideration of the entire economy.Trade also demonstrates the pattern of exporting one product and importing the other.

It positively increases the economic interdependence of two nations. Industries are dependent upon a variety of raw materials, which no country/nationcan produce alone,and the interdependence is in the interest of both the countries.

Limitations of voluntary trade are very complex. It is because every country has a different pattern and format of trading. The deals may be good or bad in accordance to the relations shared by both the trading partners.

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