Trade theories, like comparative and absolute advantage, help explain why free trade agreements are good for countries. Here’s a simple breakdown of these ideas:
Comparative Advantage: This idea says that countries should focus on making things they can produce at a lower cost compared to others.
For example, if Country A is really good at making cars, and Country B is good at making textiles (like clothing), then both countries can benefit by trading with each other.
Absolute Advantage: This one looks at which country can make more of a good using the same resources.
If Country A can produce 10 cars but Country B can only produce 5 cars, it makes sense for them to trade. Country A has the absolute advantage in making cars.
In general, free trade helps countries work better, gives them more access to markets, and improves the economy for everyone involved.
Trade theories, like comparative and absolute advantage, help explain why free trade agreements are good for countries. Here’s a simple breakdown of these ideas:
Comparative Advantage: This idea says that countries should focus on making things they can produce at a lower cost compared to others.
For example, if Country A is really good at making cars, and Country B is good at making textiles (like clothing), then both countries can benefit by trading with each other.
Absolute Advantage: This one looks at which country can make more of a good using the same resources.
If Country A can produce 10 cars but Country B can only produce 5 cars, it makes sense for them to trade. Country A has the absolute advantage in making cars.
In general, free trade helps countries work better, gives them more access to markets, and improves the economy for everyone involved.