Trade between individuals: Importance, winners, and losers

Running head: ECONOMICS
Economics
Name of the student
Name of the university
Author note

ECONOMICS
Part 1: Trade between individuals
Importance of specialization and trade
The countries trade with each other when they do not have any resources or capacity
for satisfying their own needs as well as wants. The developed countries can exploit the
developing countries and exploit the domestic scarce resources which produces surplus and
trade. The trade is also used for empowering allied nations by providing them with valuable
resources(Baldwin and Lopez‐Gonzalez 2015). Usually countries trade with each other for
purchasing of goods and services that might not have been available within the borders either
due to lack of sufficient resources or due to underdeveloped technology.
Winners and losers of trade
International trade is known to create both winners as well as losers in the economy.
Free trade means that the firms can both import and export without any tariff barriers. The
free trade is known to lead to lower price and therefore increases exports as well as imports.
The winners of the international trade are the exporters which have competitive advantage,
consumers who benefits from the decreased price, and domestic firms who expects higher
demand from the consumers. The consumers who sees lower prices as a result of the
competitive pressures of trade also gains from the international trade. As free trade decreases
the price of the imported goods, the consumers enjoy the increased living standards. When
the consumers will benefitting from the lower prices, then they will have increased power of
spending (Costa, Garred and Pessoa 2016). The liberalisation of trade benefits economic
growth which will also raise the tax revenue and will also increase the funds or spending on
public services.
The domestic firms which are uncompetitive in nature and lose out to cheaper imports
will lose from the international trade. In case of developing countries, workers can lose jobs

ECONOMICS
in case of uncompetitive industries. When any country allows trade and is known to become
an importer of good, in that case the consumers are better off and the producers will worse
off. In both cases, the gains from trade will exceed the losses. Those countries which
experiences a decline in industries and are competitive in nature are losers in the international
trade. Therefore, it can be said that free trade might affect some industries which are
concentrated in particular regions(Costa, Garred and Pessoa 2016). When these regions
suffer from job losses and low production then there will be presence of negative impact
which results to higher regional as well as structural unemployment. The free trade can also
result to environmental cost. When free trade results to a sharp shift in domestic demand, the
old exporting industries might close down that might lead to job losses.
Comparative advantage and creation of wealth
The comparative advantage refers to the ability of the economy for producing those
services and goods at a lower opportunity cost than that of their trading partners. The
comparative advantage provides a company the ability for selling goods and services at a
much lower price compared to its competitors. Comparative advantage states that it will have
lower opportunity cost of performing it. By engaging in specialization and trade, the
entrepreneurs will be able to create value for themselves as well as from the society.
Economic free is known as the ingredient for social as well as economic progress (Jensen,
Quinn and Weymouth 2017). The voluntary transactions in a fair market makes both the
traders wealthier. Therefore, the trade makes both the parties richer. The necessary
conditions for wealth creating trade to take place are property rights and by voluntary
exchange