Specialization basically means when an individual or businesses produce a narrow range of products in simple words, when a person or business focuses on producing one type of product because they are good in producing that product. International exchange allows for specialization, which is when one producer produces the good that comes at the least cost of production and opportunity to him or her and then trades for those goods that come at a higher production or opportunity to him or her.
The law of comparative advantage explains how people can gain from trade and specialization. Comparative advantage is defined as the ability to produce a good at a lower opportunity cost than others can produce it. Therefore, specializing gives that country a comparative advantage over others. specialization also leads to economic interdependence which is when producers in one nation depend on other to provide good and services that they do not produce. ere’s an example : lets say China produces 500 fish and 200 cheese and Canada produces 200 fish and 500 cheese , China will stop making cheese and focus on producing more fish and Canada will stop making fish and focus more on producing cheese , in the end , they will end up trading , this is economic interdepedence when another country relies on another country for a product or service.
Not only does it lead to mutual gains by allowing different countries to specialize in the production of those things they do best, but it also allows them to import goods that foreign producers are willing to supply at a lower cost than domestic producers.
Resources and such differ from country to country and give some countries an advantage to producing some goods over others and prove to be more profitable and advantageous to all. By allowing for international trade, countries can specialize in those goods that they can produce most economically and them offer them to consumers at a cheaper, more affordable, and more economical price.
Absolute advantage is a situation in which a nation as a result of its previous experience can produce more of a good, with the same amount of resources, than another nation. till , this doesnt mean that just because one country has an absolute advantage that the countries cannot gain from international trade. countries can still gain as long as relative production costs differ. 3 reasons why International trade is necessary International trade allows countries to learn from each other and take in new ideas. international trade is needed between countries is because resources that country needs are not available everywhere. international trade is necessary is that it reduces the risk for one economy.