Advanced International Trade Theory and Evidence

Question: Discuss about the Advanced International Trade for Theory and Evidence. Answer: Introduction The biggest advantage that is associated with international trade relates to the benefits accumulating from territorial division of worker and global specialization. On the other hand, the increase in price will lead to more revenue from each purchase that an individual will make (Feenstra, 2015). The supplier of every product seeks to increase revenue either by lowering price or by increasing price. The circumstances under which suppliers takes the decision to lower the price of the product are as follows: If the suppliers lower the price of their products, customers will prefer to purchase those commodities who price have decreased as compared to other commodities. By lowering price, suppliers will be able to keep the cost of sales and number of sales constant. This will in turn capture the market share. Lowering of prices will lead to increase in revenue if the demand curve is perfectly inelastic The circumstances under which suppliers takes the decision to increase the price of the product are as follows: If the suppliers increase the price of a product, the amount of supply will also increase. In order to generate more revenue, the suppliers will produce more product ((Brogaard, Hendershott Riordan, 2014). A country is said to have absolute advantage if it specializes in the production of all commodities and services. The graph shows that there are two countries, such as Country A and Country B. According to the graph, Country A specializes in the production of oranges and on the other hand, country B specializes in the production of both the goods. As a result, country B produce all goods more economically as compared any other country, has no need to engage in trade. In other words, this country can produce a commodity with negligible amount of resources. The major reason for which the country does not require to engage in trade is that the country is completely endowed with all the resources (Seretis Tsaliki, 2015). It can be concluded that the countries that are not be able to produce all the products should get engaged in trade. References Brogaard, J., Hendershott, T., Riordan, R. (2014). High-frequency trading and price discovery. Review of Financial Studies, 27(8), 2267-2306. Feenstra, R. C. (2015).Advanced international trade: theory and evidence. Princeton university press. Seretis, S. A., Tsaliki, P. V. (2015). Absolute Advantage and International Trade Evidence from Four Euro-zone Economies.Review of Radical Political Economics, 0486613415603160.