International trade

Any country has plenty of incentives for international trading. Exports increase the size of the market for producers. Imports stimulate competition in local markets and provide a wider choice for consumers. Another important reason for trading is to exploit advantages an economy has over others. There is an absolute advantage and a comparative advantage.

An absolute advantage is when an economy can produce goods at a lower cost than others, or they have resources others don't have. For example, many Asian countries have an absolute advantage in manufacturing electronic goods. It makes sense for countries with absolute advantages to trade with each other. An economy has a comparative advantage when it can produce something at a lower opportunity cost than other countries. The opportunity cost of something is what you have to give up in order to have it. For example, both countries A and B produce clothes and furniture, but country B makes less of both. Country B can get a comparative advantage over country A in the production of clothes by increasing its production with a small opportunity cost in furniture. However, both countries can benefit by specialising. When they produce only clothes or only furniture, they make best use of their available resources and increase their production. In turn, their economic wellfare increases. 

Countries sometimes restrict trade with other countries by charging tariffs on imports. These taxes make imports more expensive than locally produced products. An import quota is when governments restrict the amount of imports entering the country.
Decide whether these statements are true or false.
1. Imports can be good for an economy.
2. A small economy can have a comparative advantage over a larger economy.
3. Specialising in one area of trade can give a country a comparative advantage.