Assignment in Trading

1. Define what is trading? Differentiate Local Trading from International Trading.

Trading refers to the process of buying, selling, or exchanging goods, services, or financial instruments. Local
trading occurs within a specific geographical area, typically a single country, and is governed by local laws and
regulations, involving domestic currencies and benefiting from reduced transportation costs and fewer
regulatory barriers. In contrast, international trading involves the exchange of goods and services between
countries, governed by international trade agreements, global standards, and multiple currencies. This type of
trading allows countries to access a broader range of goods and services and tap into global markets, but it also
involves higher transportation costs, tariffs, and more complex regulatory compliance.

2. Who are the winners and losers of local and international trading?

In both local and international trading, there are distinct winners and losers. Consumers generally benefit from a
greater variety of goods and services and potentially lower prices due to increased competition. Exporters gain
access to larger markets, leading to increased sales and economies of scale, while efficient producers in
countries with comparative or absolute advantages can maximize production efficiency and profitability.
However, domestic industries that struggle to compete with foreign producers may face job losses and business
closures. Workers in non-competitive sectors could experience unemployment or reduced wages as production
shifts to more competitive or efficient markets. Additionally, countries with weaker economies might suffer
from trade deficits, currency devaluation, and economic instability due to unequal trading conditions.

3. What are the advantages and disadvantages of local and international trading

Local and international trading each come with their own sets of advantages and disadvantages. Local trading
offers lower transportation and transaction costs, simpler regulatory compliance, and supports local businesses
and economies. However, it also has a limited market size, which can restrict business growth, offer less variety
and availability of goods and services, and potentially result in higher prices due to less competition. On the
other hand, international trading provides access to a wider range of goods and services, economies of scale,
and encourages innovation and technological advancements through competition. The disadvantages include
higher transportation costs, exposure to global economic fluctuations and trade policies, and complex regulatory
compliance, with potential for trade disputes.

4. Explain the Production Possibility Frontier.

The Production Possibility Frontier (PPF) is a curve illustrating the maximum feasible quantity of two goods
that an economy can produce given its resources and technology. Points on the PPF represent efficient
production levels, while points inside the curve indicate underutilization of resources, and points outside the
curve are unattainable with current resources and technology. The PPF demonstrates trade-offs between
different goods, showing that producing more of one good requires sacrificing some of another due to limited
resources. It highlights the concepts of opportunity cost and economic efficiency, indicating the most efficient
allocation of resources.

5. Differentiate comparative vs absolute advantage and how does it work?

6. Enumerate and explain what are the common barriers to international trading