Q:

Why do countries engage in trade?

A:

Quick Answer

Countries engage in trade because it allows them to acquire resources that they do not have, sell resources that they have in abundance, increase income and protect multinational corporations. They are also able to reach new markets and improve relationships with other countries, which may prove vital in times of international crisis.

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Full Answer

All countries, regardless of size, engage in trade because no single country can produce all the goods and services its citizenry requires. Countries attempt to produce goods with a low opportunity cost and trade them with other countries for goods that they cannot produce domestically or find expensive to produce.

Absolute and comparative advantages play an important role in determining the nature of trade between specific countries. When a country can produce more of a specific good with the same resources as compared to another country, it?s said to have an absolute advantage. In the same way, a specific country is said to have a comparative advantage if it?s able to produce goods at a relatively lower cost than other countries can.

In 1995, the World Trade Organization was formed to help supervise and regulate international trade. As of 2015, there are 161 member states in the WTO.

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