Trade and Globalization


Free trade is the exchange of goods and services between countries without restrictions. Free trade encourages the most efficient production of goods through a principle known as comparative advantage. Comparative advantage is the notion that some countries can produce certain goods more efficiently than other goods, and these countries can produce certain goods more efficiently than other countries. Free trade encourages countries that have a comparative advantage to increase in labor specialization, the concentration of resources (e.g time, workforce, capital) on the production of fewer individual goods. Typically when a country increases its specialization its overall production of goods increases, and its self-sufficiency decreases. The overall production of goods increases because of an idea called opportunity cost, an opportunity cost is produced whenever goods are created, if resources could have been allocated differently to produce another product then the opportunity cost of making one is not making the other. The decrease in self-sufficiency is due to the production of fewer different products; the nation must then trade to get the products it does not produce. However, this not usually a negative phenomenon for if enough of all goods are produced trade tends to insure that all nations with enough production are able to get everything they need to consume. In fact overall consumption tends to go up because production increases.

Bibliographical Information:

Blinder, A. S. (n.d.). Free Trade. In The Concise Encyclopedia of Economics
[Information on Economics]. Retrieved October 22, 2008, from
http://www.econlib.org/library/Enc/FreeTrade.html

Free Trade. (2000). In World Book Millenium 2000.

The Pros and Cons of Pursuing Free Trade [Information on Free Trade]. (n.d.).
Retrieved October 22, 2008, from http://www.cbo.gov/doc.cfm?index=4458