International trade means buying and selling goods and services across countries. Globalization increases interconnection through trade, capital flows, technology and information. For business, international trade creates new markets, access to cheaper inputs, and competition. But it also creates risks like exchange rate fluctuations and trade policy changes.
This topic is commonly asked:
International trade refers to exchange of goods and services between countries (imports and exports).
Main gains/benefits:
A country has absolute advantage if it can produce a good at lower absolute cost (or with fewer resources) than another country.
Trade logic: each country specializes in goods where it has absolute advantage.
Comparative advantage is about opportunity cost. A country has comparative advantage in a good if it can produce that good at a lower opportunity cost than another country, even if it does not have absolute advantage.
Key point (easy exam line):
Simple intuition:
Terms of trade (TOT) show how many imports a country can obtain per unit of exports.
Basic idea:
Why it matters:
Countries use trade barriers to protect domestic industry, raise revenue, or manage BOP.
Tariff is a tax on imports.
Examples:
Globalization means greater integration of economies through:
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Mini table:
Thus, comparative advantage explains why trade benefits both countries through specialization.
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International trade means buying and selling goods and services across countries. Globalization increases interconnection through trade, capital flows, technology and information. For business, international trade creates new markets, access to cheaper inputs, and competition. But it also creates risks like exchange rate fluctuations and trade policy changes.
This topic is commonly asked:
International trade refers to exchange of goods and services between countries (imports and exports).
Main gains/benefits:
A country has absolute advantage if it can produce a good at lower absolute cost (or with fewer resources) than another country.
Trade logic: each country specializes in goods where it has absolute advantage.
Comparative advantage is about opportunity cost. A country has comparative advantage in a good if it can produce that good at a lower opportunity cost than another country, even if it does not have absolute advantage.
Key point (easy exam line):
Simple intuition:
Terms of trade (TOT) show how many imports a country can obtain per unit of exports.
Basic idea:
Why it matters:
Countries use trade barriers to protect domestic industry, raise revenue, or manage BOP.
Tariff is a tax on imports.
Examples:
Globalization means greater integration of economies through:
Balance of Payments (BOP) is a systematic record of all economic transactions between residents of a country and the rest of the world during a period (usually a year).
Main structure (broad overview):
Includes:
Includes:
Overall identity idea:
BOP disequilibrium means persistent deficit or surplus in BOP.
Exchange rate is the price of one currency in terms of another (e.g., Rs per $).
Types:
Key factors:
Exchange rate changes affect:
BOP deficit → find cause (exports low / imports high / capital outflow)
→ promote exports + manage imports + improve productivity
→ adjust exchange rate (if needed) + attract stable capital inflows
→ BOP improves
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Trade barriers restrict international trade to protect domestic industry or manage foreign exchange.
Hence, trade barriers protect domestic producers but can increase consumer prices and reduce competition.
Meaning: Globalization is the process of increasing integration of economies through trade, investment, technology, and information flows.
Table:
Conclusion: Globalization brings opportunities, but firms and governments must manage risks through competitiveness and stable policy.