question_answer 14)

Discuss as to why nations trade.

Answer:

The countries have unequal distribution of natural resources among them or have differences in their productivity levels because of which they cannot produce all that they need equally well or at equal costs. Availability of various factors of production such as labour, capital and raw materials that are required for producing different goods and services differ among nations. Moreover, labour productivity and production costs differ among nations due to various socio-economic, geographical and political reasons. Due to these differences each country finds it advantageous to produce those select goods and services that it can produce more efficiently at home, and procuring the rest through trade with other countries which the other countries can produce at lower costs. This is precisely the reason as to why countries trade with others.