Increases In World Trade Essay

2120 words - 8 pages

Increases in World Trade

Trade is where people exchange products, either directly through a
barrier or indirectly through the medium of money, in hope of
achieving mutual advantage (Comparative advantage which in turn leads
to opportunity cost)

Trade therefore allows a country to consume beyond its PPF. The
greater the gradient of it’s trading line,the greater the gains from
trade to the countries concerned.

Another way to emphasize the significance of trade is to show the
welfare gain of going from no trade to free trade.


[IMAGE]This diagram shows no external trade allowed. DH and DS
represent domestic demand and supply curves respectively. The price
will initially stay at P1 and equilibrium quantity at Q1. Suppose that
trade becomes possible and the good can be imported at the world price
PW. There will be a gain of consumer surplus in areas A+B+C and a loss
of producer surplus of A, implying a net welfare gain of area B+C. The
fact that gains are made proves an incentive for world trade to take
place, therefore globalization grows from strength to strength.

The process of trade allows the specialization of function, the
division of labour and economies of scale to increase output per unit
of input and expand that variety of consumer products. This arguably
will eventually lead to globalization which is the way in which a
supernational economy is developing in the markets for both products
and assets. Some of this is under the control of government in the
form of trade liberalization and larger trading blocs. However, some
of it is developing out of government control where people are using
the internet to buy and sell assets and products using UK of foreign

Globalization may be increasingly common now a days, however, it is a
fairly old concept arguably originating from the 16th century when
Columbus journeyed the world and trade had begun with The Americas and
the UK. There was a significant increase in the amount of world trade
and investment in the late 19th century, unfortunately World War 1 had
caused this to come to a halt, and later followed by a period of
protectionism. Fortunately, since the second world war, globalization
has grown from strength to strength.

A cause of globalization Is an increase in trading blocs. These are a
groups of countries which consent to the idea of reducing or
eliminating trade barriers between them. E.g. NAFTA. However, there
are different types of trading blocs. For example, they can be free
trade areas, customs unions, economic unions or a common market. These
blocs encourage trade , but, the main goal of the World Trade
Organization is to promote multilateral trade and the growth of such
blocs does to some extent undermine this principle. This is due to the
fact that trading blocs...

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