What theoretical results should follow from international trade?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Theoretically, international trade should result in a situation where more goods and services are produced in the world as a whole than would be produced if there were no trade.  The reason for this is that countries will produce the things for which they have comparative advantages and trade those for things that are made in other countries.  When countries do this, the opportunity cost of making all the various products that consumers want goes down. You can see a more detailed explanation, using numbers, at this link.

Theoretically, then, international trade results in increased prosperity for the world as a whole.  Trade allows countries to specialize in things they are best at making and that allows more of all things to be made.

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