General

Benefits Of Trade And Comperative Advantage

Trade

Trade is the exchange of goods and services between people or entities. In the modern world, the medium of trade is money. This is contrary to the past where the form of trade called barter trade was practiced i.e. people exchanged goods for other goods or services. Market is a network of trade activities. Modern trade can be local (Trade within one country), regional (trade between countries found in the same region) and international trade(trade between a countries of the world.

Existence of trade results from labor division and specialization whereby suppliers assume their role in trading by concentrating on producing that product or service. The output these suppliers gain from trade is then used in other needs. Example is production of a certain cash crop like tea. In turn these people benefit from their supplies and also benefit their buyers. Trade is said to be perfect when the supplier is satisfied with the outcome of their products and the buyer is also satisfied by the products they buy from the supplier. Trade is therefore a mutual beneficial activity in which both sellers and buyers benefit. Some of the benefits of trade are discussed below.

Benefits of Trade

Trade helps to develop and strengthen positive ties between nations, groups and individuals.

Trade helps to stimulate the economy of a region a locality within which it takes place. This is because buying and selling activities increase leading to increased money circulation.

It promotes innovativeness and creativity making it possible to convert unproductive resources into more beneficial sources of income.

Trade helps people and households to generate income that can be used in other development projects. Trade therefore increase chances of development.

Trade leads to social interaction where by ideas are shared leading to improved social relationships and a harmonious living environment.

Trade creates a healthy and competitive environment and this increases the chain of supply because suppliers will bring in more supplies as the buyers buy them at an increased rate.

Trade opens up business opportunities for companies and groups. It opens up markets and removes any unnecessary barrier that may prevent them from exporting or selling their products

Trade increases chances for customers to choose their preferences hence enabling them to obtain their best preferred goods and services.

Trade opens up opportunities for employment. It boosts sectors of economy that provide employment opportunities. Trade is also a form of self-employment.

Comparative Advantage of Trade

In a free trading environment, producers or suppliers of a commodity produce more of, and will consume less of that product. Usually, this product has a high demand on the prevailing market situation. If two countries, for example, are both able to produce a similar commodity, even one of those county’s workers can produce better commodities, these countries will still engage in free trade. Each country will then increase its general consumption by exporting that good and importing a similar good, as long as they do not have the same productivity in terms of labor. This is one of the most powerful determinant of economic growth.

Vanessa Normand is author of this article and expert in stock trading and StocksNeural forecasting.