International Trade

Back to: ECONOMICS SS3

 

Welcome to class! 

In today’s class, we will be talking about international trade. Enjoy the class!

International Trade

One way by which we live better on earth today is because international trade permits national, regional or territorial division of labour to be practised.  International trade is also known as foreign trade or external trade involves the exchange of goods and services between two or more countries.

TYPES OF INTERNATIONAL TRADE

There are two major types of international trade.  These are:

1. Bilateral International Trade – Bilateral international trade is a trade agreement in which two countries exchange goods and services.
2. Multilateral International Trade – Multilateral international trade is a type of trade in which a country trades with many other countries. E.g. Nigeria trades with the USA, Britain and Japan.

REASONS FOR INTERNATIONAL TRADE

1. Uneven distribution of natural resources. While some countries are naturally blessed, others have little or no natural resources.
2. Differences in Climatic Condition – This variation gives rise to the growth of different crops, hence the need for exchange.
3. Differences in Technology – Some countries with advanced technology can produce some industrial product at reduced cost and sell to less developed countries.
4. Expansion of the market for the product.
5. Desire to improve the standard of living

BARRIERS OR PROBLEMS OF INTERNATIONAL TRADE

1. Language problem
2. Problem of distance
3. Numerous documents
4. Differences or fluctuation in currency
5. Tariff – This makes imported goods more expensive.
6. Religion and cultural differences.
7. Artificial barriers e.g. ban, quota, or the use of license
8. Transport and Communication problem.
9. Government policy.

DIFFERENCE BETWEEN DOMESTIC AND FOREIGN TRADE

1. A common language is spoken in Domestic trade while in Foreign trade requires knowledge of the new language.
2. There are differences in the system of weighing and measuring in one country vis-à-vis another. A country has only one system of such weigh and measure.
3. Differences in transport cost due to distance between buyers and sellers, documentation requirement, need for insurance in respect of foreign trade distinguish foreign trade from home trade.
4. There are also differences in legal systems and culture under international trade but the legal system are the same in domestic trade.
5. In foreign trade, buyers and sellers use different currencies whereas buyers and sellers in home trade use the same type of currency.
6. There is a possibility of restriction – tariffs, import duties, export duties quota embargoes – when goods are exchange across national boundaries while this does not occur in the home trade.

GENERAL EVALUATION

1. Describe four problems of barter system.
2. What is perfect competition?
3. Differentiate between creeping inflation and hyperinflation.
4. What is a competitive supply?
5. Differentiate between direct tax and indirect tax.

 

In our next class, we will be talking more about International Trade.  We hope you enjoyed the class.

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