Need for International Trade
The type of trade with which most people are familiar is
retail trade, in which shopkeepers sell goods to individual consumers for
money. If it is done on a large scale it is called wholesale trade, in which
factories or producers sell the goods to wholesalers, who in turn sell them to
shopkeepers or retailers. The exchange of goods and services between different
regions within a country is referred to as internal trade. Thus, international
trade refers to the trade or exchange of goods and services between two or more
countries.
No country can be completely self sufficient, and trade
between countries is therefore essential to ensure a supply of a country's
needs. Moreover, it enables the people to enjoy those goods and services which
they cannot produce themselves or which they can produce at a relatively high
cost.
There
is unequal distribution of productive resources by the nature on the surface of
the earth. Countries differ in respect of climatic conditions, availability of
cultivable land, forests, mines, mineral products, labour, capital technology
and entrepreneurial skills etc. Given their diversities, no country has the
potential to produce all the commodities at the least cost.
Just as there is division of labour in the case of
individuals, the countries also adopt this principle at the international
level. Each one of them specializes in the production of only such commodities,
which they can produce at comparatively lower cost than the others. They export
such products to others and in return import those products in the production,
of which they have comparative cost disadvantage. The existence of cost
differences create price differential among the various countries.
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