ABSTRACT
In our exposition of the theory of international trade, we started with countries that were initially operating as closed economies. We threw open these isolated countries and allowed them to trade freely with each other, and then we examined and analyzed the economic effects of trade. An important conclusion of this analysis was that countries, if not all individuals in the countries, generally gain from trade. When each country specializes in products in which it has a comparative advantage, exporting them in exchange for imports of other products in which it has a comparative disadvantage, the result is a gain in economic welfare. Even when differences in pre-trade prices do not exist to provide a basis for trade due to comparative advantage, gains are possible as
learning objectives
economies of scale are attained and competition results in greater production and lower prices.
