Trade between countries:a)determines prices of products in different countriesb)decreases competition between countriesc)makes a country dependent on the otherd)none of theseCorrect answer is option 'A'. Can you explain this answer?

Question

Answer

Following are some factors which affect the price of a commodity in different countries.
One of the major factors that affects the prices of goods is the difference in taxes and import duties across countries. When dealing in commodities, or any physical good, the cost to transport them must be included, resulting in different prices when commodities from two different locations are examined. Because transaction costs exist and can vary across different markets and geographic regions, prices for the same good can also vary between markets. Legal barriers such as capital controls, or in the case of wages, immigration restrictions, can lead to persistent price differentials rather than one price.

Answer

International trade is the exchange of goods and s

ervices between

Answer

Trade between countries: determines prices of products in different countries

Trade between countries plays a significant role in determining the prices of products in different countries. This is primarily because trade allows for the exchange of goods and services across borders, which leads to a redistribution of resources and influences supply and demand dynamics. Here are the reasons why trade between countries determines prices of products:

1. Comparative Advantage:
Trade allows countries to specialize in producing goods and services that they have a comparative advantage in. Comparative advantage refers to the ability of a country to produce a good or service at a lower opportunity cost than another country. As countries focus on producing goods they are most efficient at, it leads to increased productivity and lower production costs. This, in turn, affects the prices of products in different countries as the cost of production influences the final price of goods.

2. Supply and Demand:
Trade affects the supply and demand dynamics of products in different countries. When a country engages in trade, it opens up new markets and increases the availability of goods. This increased supply can lead to lower prices as competition intensifies. Conversely, if a country restricts trade, it reduces the availability of goods, leading to higher prices due to limited supply. Therefore, trade influences the balance between supply and demand, which directly impacts prices.

3. Tariffs and Quotas:
Trade barriers such as tariffs and quotas imposed by countries can affect the prices of products. Tariffs are taxes imposed on imported goods, while quotas restrict the quantity of goods that can be imported. These trade barriers increase the cost of imported products, making them more expensive for consumers. As a result, domestic products may become relatively cheaper compared to imported goods, affecting the overall price levels in a country.

4. Currency Exchange Rates:
Trade also influences currency exchange rates, which can have a significant impact on the prices of products. When countries engage in trade, they need to exchange currencies to facilitate transactions. The exchange rate between currencies determines the relative value of one country's currency compared to another. Fluctuations in exchange rates can directly affect the prices of imported and exported goods. If a country's currency depreciates, it makes imports more expensive, leading to higher prices for imported products.

In conclusion, trade between countries is a key determinant of prices of products in different countries. It influences prices through the concept of comparative advantage, supply and demand dynamics, trade barriers, and currency exchange rates. Understanding the impact of trade on prices is crucial for businesses, policymakers, and consumers in assessing the competitiveness and affordability of goods and services.

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