Q. 34.0( 1 Vote )

What is the major reason underlying trade between nations?

Answer :

The major reason underlying trade between Nations is explained below:

a. The major reason is the theory of comparative cost advantage. It means that all the countries cannot produce all the goods due to the unequal distribution of natural resources or due to the differences in their productivity level.


b. Some of the resources are abundant in one country and scarce in another. So the country with abundant resources engages in international trade with the country with scarce resources.


c. Different countries are endowed with different factors of production- land, labour, capital, and entrepreneur.


d. India is a labour abundant country, so it engages in commodity production which uses labor-intensive method and exchanges it for those which use capital intensive methods, for example, USA.


E. One country always has a comparative advantage in the production of good as compared to others.


f. In conclusion, every country estimates the goods that it can produce in the most optimum whey and exchanges it for another good giving rise to international trade.


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