Pakistan study notes for Matric, Intermediate, B.A, B.COM BSC, M.A, BCS. Free Pakistani Urdu educational school, colleges and University notes.

CONCEPT OF INTERNATIONAL TRADE

CONCEPT OF INTERNATIONAL TRADE

By economic advantage international trade is attributed to two reasons:

 

a.         Absolute advantage

b.         Comparative advantage

 

Absolute Advantage

A country enjoys absolute advantage over the other when the former commands full control over particular production and supplies or possesses monopoly in a certain field or fields. South Africa monopolizes the production of diamonds and helium. OPEC countries command almost full control of oil supply. Hence, the countries short of these commodities will have to import them and consequently foreign trade will come into being.

 

Comparative Advantage

Why does a country find itself surplus in a commodity? It is just because it specializes in it owing to skill, raw material supply, climate or soil. Why is another country short of that commodity? The answer is it has no favorable conditions to produce it. Hence, the first country will produce it with full production economies, while the other will import it from the country of surplus and will share the benefit of the exporting country. Pakistan has surplus of cotton and Bangladesh of jute.

Pakistan will not produce jute and Bangladesh cotton. If they do, the output will be poor, inferior and costlier. So, it is better for them to concentrate on their respective specialized products and exchange them to meet their needs.

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