0
Rate this Study Guide:
☆☆☆☆☆Underdeveloped countries don't have the productive capacities necessary to take advantage of increasing international trade.
Increased mobility allows producers to move jobs to lower-cost labor markets.
Countries with well-established infrastructure and productive capacities have more competitive industries.
Interdependence involves a loss of control over the national economy.
When they can produce it at a lower opportunity cost than other countries.
Free-trade policies
Think that you're country A, wanting to buy pen and paper.
Country B produces 1 million pen and 1 BILLION paper
Country C produces 1 BILLION pen and 1 million paper
Or, country B has the absolute advantage over production of paper while
country C has the absolute advantage over production of pen.
Coming back our theory of economy of scale, we know that to a certain point, increased production would lead to lower average cost and thus, lower price.
This would mean that paper from country B is cheaper than country C whereas pen from country C is cheaper than country B.
Therefore, you would choose to trade paper with country B while trading pen with country C.
And this is why it is important to making economic choices.
Many developing countries do not benefit from free trade policies, because their industries are to weak to compete in the international market.
