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--idea of specialization--
International trade is the exchange of goods and services between countries. There are many
benefits that may gained by firms and consumers or even society as a whole as the result of
international trade. All countries in this world do not have equal in havng natural resources
and facilities to produce goods and services and thus different in opportunity costs in
production of goods and services in every countries. Country like India for example has
abundant of labour power but lack of natural resources whereas countries like Japan are rich
in capital resources but lack in labour power. With international trade, a country is able to
produce goods and services that they specialize in, enabling the efficient use of factors of
production with minimum opportunity cost. This is known as specialisation where a country
focuses on producing goods and services that they are specialize in to gain greater degrees of
productive efficiency. This causes the potential output to be maximized, where in the PPC
curve, the point of production will be on the curve rather than inside the curve where
potential output is not maximized. Economies of scale occur may occur that is reduction of
total average cost per unit as the cost of increase in total production will spread
throughout a larger volume as the result of specialisation where a country only produce
the goods that they are good at and import the rest. When the average cost of production
is reduced, the firms are able to maximize their supply and revenue and thus increasing their
profit and through international trade market gets bigger. Increasing in the profit of the frims
will cause an increased in the corporate tax gained by the government. These taxes can be
used to fund commodities that may provide positive externalities such as education, health
care. Thus, increasing the standard living of people and the welfare gain by the society. The
consumer will aso receive benefits, as lower price are being offered due to lower cost of
production per unit leading to an increase of consumer surplus.
--graph of PPC--
However, this may not be the case as when the firms get bigger and bigger, the cost per
average unit will return to constant and as the firms grow even bigger this may lead to
diseconomies of scale that is an increase in marginal cost when output is increased causes the
firms to cut down supplies and as time passes, laid out workers causing unemployment.
--evaluation of specialization--
Addition to that, it does not necessarily that when the firms increases their supply due to
economies of scale advantage, they will gained an increase in revenue as it does not
necessarily means consumers going to purchase their goods. The firms may end up in the
excess in supply, causing loss to the firms in a large scale as unwanted goods remains unsold.
Worse, the goods exported are intangible goods that is it wont last long such as foods. On the
other hand, specialization may causes a country to be too over-dependent on the export sales
of one particular industry. In this world, where the global demand may change, for example
in Malaysia where the demand for rubber has fallen due to existence of rubber synthetic
causing Malaysia to decrease in their supply of rubber, thus, reducing the revenue gained by
exporting the rubber,and in the long-run may laid out some workers. Workers on the other
hand who have low occupationaly mobility of labour, where the workers cannot easily switch
career field to meet the current labour market needsas they only speacialize at one task that is
processing the rubber, may lead to structural unemployment decreasing the standard of living
and in the long-run may increase the income inequality of the household in that country and
reducing the consumption, and of course reducing the total GDP. Also, specialization may
also cause threat to uncompetitive sector as it could be the case where local firms may not be
able to compete with cheaper ot better imports. For example, the demand of local products in
the US fall due to cheaper imports from China where in the long-run leading to structural
unemployment as firms are force to cut down the supply, as the result of the excess of supply.
--import machineries, technological transfer, capital goods--
Also, international trade also involves the import of capital goods that is tangible
assets such as machineries, equipment and tools needed to produce goods and services. A
firm that import these goods are able to learn from other firms in other countries to produce
their goods at higher efficiency with lower average cost per unit, leading to economies of
scale as stated above, increasing in production and revenue, consequently increased in the
corporate tea revenue. In this case, we may said that technological transfer occur.
However,technological transfer from other countries may result in unemployment to low-
skilled workers as their tasks are being replaced by machines that can produce at greater
efficiency leading to unemployment, thus reducing the standard of licing.
International trade also enables countries to obtain foreign exchange that is when a country
exports their product, they will be paid in foreign currencies. For example, when
Ghana is dealing with the UK, any export or import will be converted to sterling. This
enable countries such as Ghana which do not have a convertible currency that is a
currency which can be freely exchanged for other currencies on the world market and
they will be paid in Euro that can be used to buy essential goods from other countries
such as petroleum and industrial machines. However, in business especially, leaving
the currency exchange to the last minute that is y not planning ahead, this may cause a
loss in the firm as markets volatility could always change the sterlings worth as the
worth of sterling may decreases resulting in unstable profits to the firms.
Conclusion :
International trade has to be approached sensibly and with a clear thought process to
maximize the benefits and minimize the risks.