Read the text International trade

There are plenty of incentives for a country to have an open economy. Exports increase the size of the market for producers. Imports stimulate competition in local markets and provide a wider choice for consumers. These are good reasons for international trade. However, another important reason for trading is to exploit advantages. Economists talk about two types of advantages that an economy can have over others: absolute advantage and comparative advantage.

An economy has absolute advantage when it can produce goods at a lower cost than other economies can, or they have resources that others don’t have. For example, warm Mediterranean countries have an absolute advantage in the production of olive oil. Many countries in Asia have an absolute advantage in manufacturing electronic goods. Clearly, it makes sense for countries with absolute advantages to trade with each other.

The second kind of advantage is comparative advantage. This happens when an economy can produce something at a lower opportunity cost than other economies can. Remember that the opportunity cost of something is what you have to give up in order to have it. For example, imagine that country A makes two things with its resources: clothes and furniture. If it wants to increase production of clothes, it must decrease its production of furniture. This loss is the opportunity cost.

Now imagine that country В also makes clothes and furniture, but it makes less of both than country A. In other words, country A has an absolute advantage over country В in clothes and furniture. However, country В can increase its production of clothes with only a small opportunity cost in furniture. This means that country В has a comparative advantage over country A in the production of clothes.

But why would country A want to trade with country B? What benefit would they gain? In fact, both countries can benefit by specializing. If country A produces only furniture, and country В produces only clothes, both countries will be making best use of their available resources. By trading in this way, production of both products increases. In turn, this increases the economic welfare of both countries.

Words:

plenty — множество opportunity costs — издержки

incentive — стимул упущенных возможностей

absolute advantage — абсолютное loss — потеря

преимущество to give up — отказываться

comparative advantage — сравни- in order to — для того, чтобы

тельное преимущество benefit — выгода

Mediterranean — средиземно- to benefit — помогать

морский welfare — благосостояние

Post-text exercises

Working on the text

I. Find answers in the text:

I. How can exports help producers? 2. What does import stimulate in
local markets? 3. What are two types of advantages that stimulate trade?
4. What is absolute advantage? Give an example. 5. What is comparative
advantage? Give an example. 6. What is the opportunity cost? 7. Why do
countries want to trade with each other? 8. What will international trading
give to each country? 9. What is the role of competition in international
trade? 10. Can international trade benefit international production?

II. Complete the sentences as in the text:

1. Economists talk about two types of advantages that an economy… 2. An economy with absolute advantage can produce… 3. An economy with comperetive advantage can produce…

Дата добавления: 2014-12-29