Managerial Economics and Strategy, 2/e

17.1 Reasons for International Trade

Everyone consumes many imported products. A typical American breakfast might include bread made from Canadian wheat, jam imported from England, fruit from Mexico, and tea from India or coffee from Brazil—along with perhaps some corn flakes produced in the United States.

Why do we rely on other countries for the goods that we consume? Why doesn’t each country produce everything it needs domestically?

Trade between countries occurs for many reasons. The most important is that international trade allows countries to specialize in producing goods and services for which they have a comparative advantage: the ability to produce a good or service at lower opportunity cost than other countries.

Comparative Advantage ...