Reasons for trade

Reasons for trade

1. DD-Side

   • Diff in T&P
     • Eg, preference towards Japanese cuisine → M of Salmon Sashimi
   • ↑ Competitn
     • Innovate & Improve quality of g&s
       • ↑ Variety, quality and qty
     • ↓ Px

2. Engine for growth

   • ↑ mkts, ↑ X → ↑AD
   • ↑ I, ↑ RNY
   • ↑ AS
     • Tsf of tech → ↑ productive capacity
       • ↑ LRAS
     • ↑ Competn
       • ↑ R&D & Efficiency
     • Import cheaper factor input → ↓ COP
       • ↑ SRAS

3. CA Theory

   • Ability to produce gds @ a lower opp cost
   • Specialization of g&s they have CA in → exports them
     • ↑ O/p
     • Consume > PPC → ↑ Soc Welfare

4. EOS

   • Esp small dom mkts
   • IEOS & EEOS
     • Expand their scale or production
       • ↓ unit COP
         • E.g socks industry in China (EEOS)
   • Gain CA with EOS

5. Acquired needed

   • Imports of Raw Materials
   • Capital gds

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