chapter  2
THE PURE THEORY OF INTERNATIONAL TRADE
Pages 15

The purpose of the pure theory of international trade is to show why international trade exists and that it is benefi cial. This might seem a redundant exercise, since there is no reason why the normal arguments used in elementary economics to demonstrate the existence of trade (internal or external) should not be applied at the international level. The argument in elementary theory is that trade will occur whenever it is profi table for two or more people to trade. If the price of a good is different in two places then it will pay someone to buy in the cheaper and sell in the dearer market. In addition to such arbitrage transactions, sellers will gravitate to the higher-priced market and buyers to the lower-priced until prices have been equalised. It is, in general, a suffi cient condition for the existence of international trade of a good (in the absence of legal prohibitions or barriers) is that its price should be different in different countries. The gain to the participants may be regarded as self-evident or be proved using the familiar tools of welfare economics.