ABSTRACT
Foreign trade enables countries to produce the products where they have comparative advantages, and exchange them for products which are more costly for them to produce. In free market economies, the markets are assumed to play a very important role in the operation of the economy. Prices determined in fully competitive markets guide the economy. One of the assumptions of foreign trade theory is that price alone determines the demand for goods and services. In foreign trade markets, there are few buyers and sellers; all are specialized in the products in whose production they have comparative advantages. The buyers and sellers in markets may influence the markets due to the differences in the price elasticity of demand each product faces. The foreign trade theory shows that liberalized international trade increases the welfare of the world. According to economic theory, the prices of tradable products would reach equilibrium in international and national markets under the ongoing exchange rates.
