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3. Identify and describe the three most common reasons countries trade, and give an example of each of these trade motivations in action. (4 points)

A. Comparative Advantage: When a country can produce a good or service at a lower opportunity cost than another country.
Example: Country A has a comparative advantage in producing wine, while Country B has a comparative advantage in producing cheese. Therefore, Country A exports wine to Country B and imports cheese from Country B.

B. Access to Resources: When a country lacks certain resources that are abundant in another country.
Example: Japan imports oil from Saudi Arabia because Japan has limited natural oil reserves.

C. Economic Growth and Development: Trading can stimulate economic growth and development by providing markets for surplus goods and services.
Example: China exports manufactured goods to the United States, which helps drive China's economic growth.



Answer :

GinnyAnswer

Final answer:

Countries trade based on differences in technology, resource endowments, and demand, leading to advantageous exchanges.


Explanation:

Three Common Reasons for Countries to Trade:

  1. Differences in Technology: Trade occurs when countries vary in their technological abilities, leading to advantageous trade based on the Ricardian model. For example, Japan's advanced technology in electronics allows it to export high-quality goods.
  2. Differences in Resource Endowments: Countries trade when their resource endowments differ, as seen in the Heckscher-Ohlin model. An example is Saudi Arabia exporting oil due to its rich natural resource endowment.
  3. Differences in Demand: Trade happens when countries have varying demands or preferences. For instance, Italy's demand for coffee differs from Sweden's preference for dairy products, leading to trade based on consumer preferences.

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