Trade is the exchange of goods for goods or labor service for money (indirect). Trade is based on what people can do well given their factor endowment (knowledge, abilities, skills, and resources). International trade is the exchange of good, services, and capital across international borders. International trade is based on the concept of comparative advantage, which is the country’s ability to produce a good or a service at a lower opportunity cost than other countries. Factor endowment is generally what determines the country’s comparative advantage. It is assumed that if every country is specialized in producing what they are good at producing (meaning lower opportunity cost), every country will have more goods and services and more income.
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