BUSN 1101 Lecture Notes - Lecture 2: World Trade Organization, General Agreement On Tariffs And Trade, Free Trade

• School: Northeastern University
• Department: Business Administration
• Course: BUSN 1101
• Professor: Vincent Muscolino

Document Summary

Nations trade because they don"t produce all the products that their inhabitants need. They import those that they need but don"t produce. To understand why certain countries, import or export certain products, you need to realize that not all countries are good at producing or are able to produce the same products. The cost of labor, the availability of natural resources, and the level of know-how vary greatly around the world. To explain how countries decide what products to import and export, economists use the concepts of absolute and comparative advantage. A nation has an absolute advantage if it"s the only source of a particular product or can make more of a product with the same amount of or fewer resources than other countries. A comparative advantage exists when a country can produce a product at a lower opportunity cost than other nations.